Death of a Member: Lord Lane of Horsell
	 — 
	Announcement

Baroness Hayman: My Lords, I regret to inform the House of the death on 9 January of Lord Lane of Horsell. On behalf of the House, I extend our condolences to the noble Lord's family and friends.

Energy: Renewables
	 — 
	Question

Lord Teverson: To ask Her Majesty's Government what measures they will take to encourage the Export Credits Guarantee Department to support the United Kingdom renewables industry.

Lord Brett: My Lords, the ECGD aims to support UK renewables exports through a wide portfolio of products. It has introduced a number of changes to its procedures, including a relaxation of its foreign content rules, to provide cover for more foreign/local content and a willingness to consider longer credit terms, thus giving improved availability of its support for renewables. The ECGD continues to work with DBERR, UK Trade and Investment and renewables trade associations to raise awareness of the support available from the ECGD.

Lord Teverson: My Lords, I thank the Minister for that reply. I remind him that in the debates over the Climate Change Bill and various other things the Government have said that the UK renewables industry should be one of our big growth areas, and yet, as I understand it, the ECGD has not had one application for its £50 million annual underwriting fund. How will he fix that? I suggest that one way, which is used for other sectors, is to put a member of that body on the industry group for renewables.

Lord Brett: My Lords, the answer to that question comes in three parts. First, it is true that there has not been a take-up of the £50 million set aside in 2002, and research by the ECGD along with feedback from within the sector shows that the majority of the UK renewables industry is either concentrating itself on the home market or exporting to more mature economies. Very few companies are venturing into the emerging markets where the ECGD can give support. I remind the noble Lord that it is the role of the ECGD not to create but to facilitate opportunities. On the last part of the question, on the membership, I shall take it on board and write to the noble Lord.

Viscount Waverley: My Lords, is country cover being impeded by historical bad debt? If so, what is being done about a solution? Could there be a case for privatisation of the ECGD?

Lord Brett: My Lords, in the present climate of the economic credit crunch, I cannot imagine the proposal of a privatised ECGD would get a great deal of support within the City. It also seems to me a long way away from the original Question. In my decade in the House, I have always been interested by Members' ingenuity in building a bridge between the original Question and the supplementaries. This, I believe, is a bridge too far.

Lord Tyler: My Lords, on a bridge that may be rather closer, the Minister referred just now to the home market for the renewables industry, which will clearly be extremely important not least during the recession. Can he explain why there will be a hiatus in support for small-scale domestic microgeneration over the next few months? Will there not be severe damage to the whole industry if the programme is hit by the closure of the low-carbon building scheme in June of this year and then a long gap before the feed-in tariff comes into place in 2010? Given that other EU countries seem to have filled that gap rather more effectively, does he agree that the comment made yesterday by the New Economics Foundation—
	"The Government couldn't organise a windmill to spin in a gale"—
	might be true?

Lord Brett: My Lords, I am always in favour of quotes from journalists and others that have a high degree of hyperbole; but while "spinning in a gale" is obviously very topical, it is not true. Effectively £48 million is available, only £24 million of which has been bid for. This week, in responding to that quote, the Department for Energy and Climate Change called on voluntary organisations and others to bid for the half of the money that is still available.

Viscount Montgomery of Alamein: My Lords, is the noble Lord convinced that the ECGD terms are competitive with those of European credit agencies such as Coface and Hermes?

Lord Brett: My Lords, I have not closely studied that but will happily take it away and ask officials to do so. We seem to have a problem at the moment in that British industry, presumably on the basis of less risk, is concentrating on the home renewables market and on mature economies. If our industry can establish a reputation in those economies then it believes that it will be time to move into the developing world. At the moment, it is not a lack of willingness by government to encourage and support; it is some of our renewables companies' unwillingness to go into what might seem to them a more risky market.

Lord De Mauley: My Lords, can the Minister confirm that the guarantees issued under the temporary guarantee scheme announced in the Pre-Budget Report will be subject to the ECGD's case-impact-analysis procedures?

Lord Brett: My Lords, one should never forecast. We know what the Pre-Budget Report outlined and expect further development of that. I can only invite the noble Lord to await statements.

Lord Jones of Birmingham: My Lords, perhaps I may help the Minister in building a bridge between the question and the necessary answer—because it is bridge building and other civil engineering projects in which Britain excels around the world and for which the ECGD is so desperately needed. Is not the lack of take-up of this fund due to the United Kingdom business community having no confidence in the ECGD? Do not many chief executives of multinational British businesses use it to market test, so that if the ECGD ultimately says that it will do a project, the project will not need insurance? Can the Minister please provide a comparative between the credit agencies of Europe and the ECGD so that, when the pick-up comes, this country will be ready to take advantage of it around the world?

Lord Brett: My Lords, I listen to the noble Lord with great interest and acknowledge his expertise from previous positions in both government and British industry. I cannot say that I heard him spell out those views quite so clearly in either of his previous positions. However, I take on board the question and will respond to it.

Lord Pearson of Rannoch: My Lords, did Her Majesty's Government notice that there was not much wind during the recent cold spell of weather? If so, has that done anything to diminish their enthusiasm for wind power?

Lord Brett: My Lords, I can only say that the wind is where it is. Where I was for the past two weeks, there were gales of force 6 and force 7. So I can only congratulate the noble Lord on his position in Europe, where obviously it was not quite so windy.

Lord Stoddart of Swindon: My Lords, the Minister must have been in a very windy place. Where I was, in Reading, there was no wind. There was also no wind in many other places in this country. The problem with wind turbines is that, in very cold and frosty weather, when there is no wind, they do not turn. They are therefore useless in making any contribution to meeting the need for energy.

Lord Brett: My Lords, the noble Lord ignores the fact that we are creating storage facilities. More importantly, it is a question of where you are. I happened to be on the high seas, which is why I was getting a force 6 gale. We have again strayed far from the Question. I shall therefore leave it at that.

Secure Training Centres: Physical Restraint
	 — 
	Question

Baroness Stern: To ask Her Majesty's Government what action they have taken in response to the Court of Appeal judgment of 18 July quashing the amendment rules about the use of restraint in secure training centres holding juveniles aged 12 to 17.

Baroness Morgan of Drefelin: My Lords, the effect of the court's decision is to remove the legal authority for custody officers to remove trainees at secure training centres from association with other trainees, or to use physical restraint, for the purpose of ensuring good order and discipline at the centre.The Youth Justice Board has advised secure training centres on the implications of the court's ruling.

Baroness Stern: My Lords, I thank the Minister for that reply and welcome the involvement of the Department for Children, Schools and Families. Does she agree that the Appeal Court not only ruled against widening the grounds for using force against young people but actually implied that there should be a reduction? When does she expect the number of occasions when force is used to fall? The Youth Justice Board has just reported figures for the third quarter of 2008 showing that force was used in secure training centres 510 times, a 30 per cent increase on the preceding quarter.

Baroness Morgan of Drefelin: My Lords, I thank the noble Baroness for her Question and congratulate her on the passion and tenacity that she has brought to raising awareness of her concerns about the use of restraint in the secure youth estate. Coinciding with the court decision that she refers to, the Government were considering a review of the use of restraint in juvenile secure settings. Combined with those judgments and the review, the Government have announced an overview of the use of restraint in juvenile secure settings. Many of the review's recommendations were aimed at reducing the use of restraint and, in accepting those recommendations, the Government have the aspiration that the use of force should fall.

Baroness Linklater of Butterstone: My Lords, the Minister will know that the background to this change in the amendment rules was the coroners' reports on the deaths of two children in secure training centres following restraint. What specific changes are being made to the contracts and risk-assessment training of STC staff who restrain children? Further, what have the Government done to establish the mandatory accreditation scheme for all restraint-techniques training and trainers, as recommended by the independent review and with which they have announced their agreement?

Baroness Morgan of Drefelin: My Lords, first, on the contracts, the provisions to make these changes are already there. We have accepted the recommendation that all staff in the secure estate should have consistent and comprehensive training in the awareness of risk factors in restraint, the monitoring of warning signs in young people and the need to take action quickly. The Government have accepted these recommendations, and the National Offender Management Service is developing a new control and restraint technique, called for in the report, which is specifically appropriate for use with young people.

Baroness Verma: My Lords, has a decision been taken on the future of Oakhill secure training centre, considering that the recommendation to close it was made by the chief inspector last March?

Baroness Morgan of Drefelin: My Lords, I am advised that there have been significant improvements at Oakhill in particular. However, noble Lords should be reassured that there will be another independent inspection of the institution soon and we will be able to look at an independent assessment of the Youth Justice Board's view that significant improvements have been made.

Lord Elystan-Morgan: My Lords, is there not a colossal irony in this situation in that, as has already been referred to, the problem arose in 2004 when a 15 year-old boy died directly in consequence of restraint and a 14 year-old boy died from suicide indirectly in consequence of restraint? Rather than accepting the blameworthiness of the institutions concerned, the Secretary of State for Justice sought to legitimise the conduct which had caused those deaths in that he sought to elongate the law enabling pain and violence to be used as a means of controlling persons, some of them as young as 12 years old. In the circumstances, will the rules and the code of practice be gone over with a fine toothcomb to make certain that such uncivilised behaviour is not allowed to be part of the care of children in these institutions?

Baroness Morgan of Drefelin: My Lords, I do not entirely accept that analysis. It is extremely difficult for us gathered here in the House of Lords to imagine that it would be appropriate to use pain to control the behaviour of young people in a secure institution. We have called for, and had, a detailed, independent review of the rules. The recommendations are far-reaching. The Government have accepted almost all of them. We are committed to an overhaul of the use of restraint in secure settings.

Lord Carlile of Berriew: My Lords, is the Minister aware that the review to which she referred caused widespread disappointment because it failed dismally to call for a very substantial reduction in the use of restraint in custody? Will she confirm that in future the issue of physical restraint will be part of all staff appraisals and performance reviews throughout the custodial setting for juveniles?

Baroness Morgan of Drefelin: My Lords, I cannot accept that the report did not call for a reduction. A number of recommendations within the review are about reducing the use of restraint. We have asked the independent authors whether they will act as independent monitors of the implementation of those recommendations. That is important. We are expecting the entire workforce in the juvenile setting to be retrained to have a full understanding of the risk factors and the warning signs, and for that to be driven home to staff. The report is very important, important developments have occurred and we are promoting change.

Lord Low of Dalston: My Lords—

Lord Hunt of Kings Heath: My Lords, we are almost into the 17th minute. We ought to move on.

EU: Lisbon Treaty
	 — 
	Question

Lord Dykes: To ask Her Majesty's Government what is their response to the suggestions made by the Government of the Republic of Ireland to the European Council's December meeting on the Lisbon treaty.

Lord Malloch-Brown: My Lords, I refer the noble Lord to the Statement on the European Council made to this House by my noble friend Lady Royall on 15 December.
	The European Council agreed a package of measures to offer Ireland the reassurances that it needed on the Lisbon treaty covering taxation, defence, social issues and the size of the Commission. These do not change the Lisbon treaty and the legal guarantees are in line with the red lines the UK secured in the treaty.

Lord Dykes: My Lords, I thank the Minister for that Answer. Does he agree that in paragraph 4 the Irish Government again committed themselves to seeking ratification of the Lisbon treaty, armed as they understandably are, as is the rest of Europe, with the realisation that the Lisbon treaty is the only method for 27 sovereign countries to work effectively together? Is he therefore hopeful that this time round there may be a better outcome in terms of the Government's policy, not least because of the rather startling and sinister revelations of the main sources of financing for the main "No" campaign, which included the National Association for Freedom and the Heritage Foundation?

Lord Malloch-Brown: My Lords, the Taoiseach believes that these guarantees are what he sought, and he is satisfied that they allow him to return to the Irish people with a further referendum. We very much hope that the outcome will be favourable.

Earl Ferrers: My Lords, is it not a fact that the Irish people voted against the proposals that were then available, and that many other countries would have done the same? Is it not wrong that they should then be encouraged to vote for another set of proposals in the hope that they will accede to them? Is that not a question of bullying?

Lord Malloch-Brown: My Lords, 24 of 27 countries have ratified and are now ready. Ireland sought and has received guarantees, but the treaty has not been reopened. In that regard, it is a referendum on the same treaty as before.

Lord Howell of Guildford: My Lords, the treaty may not have been reopened, but the presidency conclusions specify that these proposed legal arrangements, providing they satisfy Ireland, should be to the mutual satisfaction of all member states. I understand that among other things they include that we should go back to or remain with one commissioner per country, contrary to what is proposed in the treaty. In that case, can we therefore assume that the new legal arrangements will come before this Parliament for further examination and approval before everything is signed, sealed and pushed ahead?

Lord Malloch-Brown: My Lords, we are waiting to hear what form these guarantees will take in terms of exactly how they are implemented. Of course, anything that requires to come back before Parliament will do so.

Lord Stoddart of Swindon: My Lords, can the noble Lord explain why those who prate on about democracy and the will of the people will never accept no as an answer when it suits them? Do the Government understand that the French and the Dutch rejected the constitution and then the Irish rejected the Lisbon treaty? Is that not "No" enough for the Government, or are they prepared to accept the will of the people?

Lord Malloch-Brown: My Lords, the constitution that was rejected by the Dutch and the French led to very big changes, which led to a treaty that was no longer a constitution. With 24 countries having approved the treaty, I am not sure whether the voters of Ireland should have a right of veto over the aspirations of all the other people of Europe. I am not sure whether that is or is not democracy.

Lord Tomlinson: My Lords—

Lord Teverson: My Lords—

Noble Lords: This side!

Lord Hunt of Kings Heath: My Lords, it is this side's turn.

Lord Tomlinson: My Lords, noble Lords should not confuse the noble Lord, Lord Stoddart, with being "this side"; he is "that corner".
	Does my noble friend agree that those who lecture us about democracy, particularly in a parliamentary democracy, should recognise that the sovereign will of two Houses of Parliament is an extremely valid expression of democracy? We have expressed without any hesitation or qualification—rejecting every amendment that was proposed—our view on the Lisbon treaty. The best thing that we can do now in relation to Ireland is not to seek to interfere in Irish matters but to leave it to the Irish people to make their decision.

Lord Malloch-Brown: My Lords, I thank my noble friend for that important support from behind me by means of a question. For anyone who came back from the Christmas holidays feeling a little sleepy, there is nothing like Europe to make the blood rush to all our heads.

Lord Trimble: My Lords—

Lord Teverson: My Lords—

Lord Hunt of Kings Heath: My Lords, we have not yet heard from the Lib Dems on this Question.

Lord Teverson: My Lords, from the performance of the French in the European presidency on Georgia in comparison to that of the Czech presidency on the Middle East at the moment, is it not clear that we need to change the way in which the European Union presidency works for the health of Europe and for the health of the way in which international diplomacy works? For that reason, it is so important that the Lisbon treaty is ratified and that Ireland makes a positive decision under its sovereignty.

Lord Malloch-Brown: My Lords, certainly many of us are impatient to move on and get these new arrangements in place. I commend the French presidency for its activity and vigour, although I have to say—to undermine our mutual view of this—that it was done under the old arrangements.

Lord Trimble: My Lords, during the December meeting of the European Council, when these matters were considered, did it cross the minds of the Commission or Ministers present that one of the main reasons why the Irish people rejected the treaty was because they were moving into a severe recession—more severe than ours, largely because of their membership of the euro—during which they are receiving virtually no help from the European Union? Indeed, my noble friend Lord James may be interested to learn that yesterday the Irish Government announced that they were reducing public sector salaries by 5 per cent as a mark of the severity of the recession. Did this not occur to those at the meeting in December as a possible factor?

Lord Malloch-Brown: My Lords, certainly the financial crisis was an equally big item on the agenda at that summit, but I must say that I am surprised by the thrust of the noble Lord's question, because, like many others in this House, I attribute much of the prosperity of modern Ireland to its membership of the European Union.

Finance: Short Selling
	 — 
	Question

The Archbishop of York: To ask Her Majesty's Government what steps they are taking to ensure that the lifting of the ban on the short selling of shares in financial companies does not adversely affect the market.

Lord Myners: My Lords, the partial short selling ban was a temporary measure. The FSA continues to monitor the position and is proposing to extend the requirement to disclose to the market until 30 June 2009 significant short positions in the shares of UK financial institutions. Such disclosure will continue to reduce the potential for market abuse and disorderly markets. The UK authorities continue to work together to take all necessary steps to ensure the stability of the UK financial system.

The Archbishop of York: My Lords, I thank the Minister for his Answer. Is he absolutely certain that those dangers of market abuse, disorderly markets and deficiency in transparency have all nearly gone? If they have not, is that not a good reason why the temporary ban should stay? Furthermore, does he agree with Martin Gilbert, who says that the quickest way of making money is by short selling any bank on rumour? Has that rumour element gone? If it has, how come Belgium, France, Switzerland and Germany have extended their short selling ban? Furthermore, all taxpayers in Britain have shares in the banks that were recapitalised. Could not someone bet on the taxpayers losing more money by short selling our own interests?

Lord Myners: My Lords, the most reverend Primate has waxed lyrical on this subject. I read with great interest his speech at the Drapers' Hall in September to the Worshipful Company of International Bankers. I recommend it to all Members of the House who seek amusing anecdotes to tell at after-dinner speeches. It was a truly first-class speech.
	The FSA has formed a view that the potential for market abuse and disorderly markets, which clearly exercised it when it introduced the ban in September, has now eased. It has issued a statement of consultation and we will respond at the end of this week. The FSA has set out the ground rules for controlling short selling in the future, with an important emphasis upon transparency and a move to symmetry with the disclosure of long positions, which I find commendable. The FSA will also issue within the next month a more reflective consultation document on the whole issue of short selling. A number of jurisdictions in the world, including, in particular, the United States of America, have removed restrictions on short selling. Others have maintained them, either on a permanent or a temporary basis—as the FSA is continuing to do.

Lord Barnett: My Lords, I may be naive on these matters, but does my noble friend accept that short selling is intended to adversely affect the markets? Is it not a little obscure what the benefits really are? Does he accept that it would be helpful if he published a document, perhaps in the Library, listing the benefits—with or without these measures—so that we can all peruse it at our leisure?

Lord Myners: My Lords, I always proceed with caution when my noble friend says that he is naive on a matter. Let us be clear: short selling is a feature of most financial markets—commodity markets, currency markets and deposit markets—and its benefits are the enhancement of price discovery and the creation of liquidity to cope with transaction volumes. Those are the theoretical advantages of short selling and they are very common features of commerce. Indeed, if you buy goods on the internet, frequently you will buy from someone who does not possess the television set or the book that they are committing to sell you but they will cover their short position from the supplier. Therefore, I think that we need to demystify this subject a little. Finally, on the question of whether short selling is designed to be damaging to markets, it could be argued that it would be damaging to the value of a particular security but not necessarily to the value of an effective market.

Baroness Noakes: My Lords, we agree with the Minister on the analysis of the benefits of being able to short sell in markets. However, when, in October, the SEC removed its ban on the short selling of financial institution stocks, it said that it believed that the costs of doing so had outweighed the benefits. Does the Minister believe that that will also be the case in the analysis of the situation in the UK?

Lord Myners: My Lords, I believe that the FSA's consultation, which will be launched within the next month, will cover that. A great deal of academic research, particularly from the University of Technology in Sydney and the Cass Business School in this country, will inform that review.

Lord Newby: My Lords, is the Minister aware that on the day that the bar was lifted, a leading hedge fund manager said:
	"Hallelujah. This should allow people to return to some sort of normality"?
	Does he agree that it is that kind of normality that brought the banking sector to its knees and that, frankly, the country has had enough of it?

Lord Myners: My Lords, I will not be drawn into commenting on a quotation from a particular hedge fund manager. The hedge fund community is wide and diverse, and the sector's taxonomy is complex. Suffice to say that with regard to the difficulties in the banking sector, I do not think that we can point the finger at short selling. More fundamental and deeper problems lie at the source of the difficulties that our banks and banks throughout the world are currently experiencing.

Lord McIntosh of Haringey: My Lords, does the Minister know whether the Church of England has been selling short?

Baroness Kingsmill: My Lords, does the Minister agree that short selling is a perfectly normal and respectable—

Lord Hunt of Kings Heath: My Lords, we heard a question from my noble friend, and it should be answered.

Lord Myners: My Lords, I am not aware of whether the Church of England has engaged in short selling; I am aware that Church of England commissioners, having taken advice on the ethical issues, engage in the lending of stock, which is frequently designed to support the completion and settlement of short-trading transactions. It is important to note that just about every major pension fund and every major endowment in this country is in some way or another involved in short selling. However, my noble friend made a fundamental point about stock lending practices. I have asked the FSA to look at whether those practices are sufficiently understood by practitioners and subject to appropriate regulation.

Community Amateur Sports Clubs (Support) Bill [HL]
	 — 
	First Reading

A Bill to make provision in respect of community amateur sports clubs; and for connected purposes.
	The Bill was introduced by Lord Addington, read a first time and ordered to be printed.

Merits of Statutory Instruments
	 — 
	Membership Motion

Moved By The Chairman of Committees (Lord Brabazon of Tara)
	That Lord Hart of Chilton be appointed a member of the Select Committee.
	Motion agreed.

Banking Bill

Bill Main Page
	Copy of the Bill
	Expanatory Notes
	Amendments
	DPCommittee: 1st Report

Committee (1st Day)

Clause 1 : Overview
	Amendment 1
	 Moved by Baroness Noakes
	1: Clause 1, page 1, line 5, after "banks" insert "and foreign banks"

Baroness Noakes: I shall speak also to the 18 other amendments in the group. As this is the first group of amendments, with the leave of the Committee I shall make a few opening remarks before moving to their substance.
	We made it clear at Second Reading that we would bring this Bill political good will for a speedy passage as we recognised that the Government would need powers to fill a gap that would otherwise be left by the expiry of the Banking (Special Provisions) Act next month. Consideration in the other place was rushed because the Bill was not available until October, notwithstanding that the first White Paper was published last January. Even with the unusual procedure that we adopted of starting work on the Banking (No. 2) Bill, we will be hard pressed to finish our consideration before 12 February, which is a full eight days before the Banking (Special Provisions) Act runs out. The other place has decided that it will be in recess from 12 February.
	Our good will is tinged with the frustration that we would have preferred a little longer to take the Bill at a more considered pace. Rushed legislation is often defective, which your Lordships' House abhors. We shall, of course, do our best, and it is in that spirit that we approach the Committee. I say this by way of background to our Committee consideration as a whole and to this group of amendments.
	As I said, the Bill is based largely on a White Paper published very nearly a year ago. With the exception of some new clauses, some of which were tabled only yesterday, the Bill shows almost no recognition of what has happened in the past year. It seems to respond to the problems that exhibited themselves in 2007 and not much else. This group of amendments and some others, to which we will come in due course, would fill in some of the legislative gaps revealed in the past year with which the Government appear not to have caught up.
	Last autumn when the Icelandic bank, Landsbanki, was in financial trouble and apparently threatening not to honour its international commitments to UK depositors, the UK Government took the unexpected step of using powers contained in the Anti-terrorism, Crime and Security Act 2001 to freeze the UK deposits in that bank to protect UK depositors. The Minister will be aware that the use of these powers, while doubtless available technically, was the cause of some controversy. There is a dispute as to the facts on which the Government rested their decision that these extreme powers should be activated, and there has been a lasting resentment in Iceland that Icelanders have been tagged as terrorists. I do not want to debate the facts and circumstances of Landsbanki—there will be plenty of other opportunities for that—but I want to raise whether this Bill should have a tailor-made version of the asset-freezing powers embedded in it. The Bill must be clear on the full range of the Government's powers in respect of banks that fail, which in so doing have a potential impact on the UK.
	The Minister will be aware that when the Anti-terrorism, Crime and Security Act was passed there was much unhappiness in Parliament about the sweeping nature of its powers, many of which as we know were not confined to counterterrorism activities. That was known at the time and has been demonstrated several times since. The Government undertook to set up a review of the legislation by a group of Privy Counsellors led by my noble friend Lord Newton of Braintree. It is interesting to note that of the nine members of that review, all but two were then, or are now, Members of your Lordships' House. Indeed, one of the remaining two is married to a Member of your Lordships' House.
	The report, which was unanimous, took the view that when special counterterrorism legislation is required it must,
	"contain proper protections for the privacy and liberty of the individual, and in our view, stand apart from other law so that it can be accompanied by its own tailored safeguards, including careful monitoring and review of its use. It is important that it commands public support, otherwise its use risks being mistrusted and therefore less effective".
	In relation to freezing orders, the review said that the powers in the 2001 Act should lapse and be replaced in relation to counterterrorism by primary legislation based on UN Security Council Resolution No. 1373. In other cases, as the report stated at paragraph 150:
	"Freezing orders for other emergency circumstances, and the safeguards which should accompany them, should be reconsidered on their own merits in the context of more appropriate legislation".
	The Government have done nothing in response to the review undertaken by the Privy Counsellors, but they have used the powers in relation to non-terrorism circumstances in the case of Landsbanki. My amendment seeks to develop a tailored regime of asset freezing in the case of bank failure.
	I shall not deal with the amendments in great detail. They cover more than a dozen pages of the Marshalled List and are significantly based on the legislation contained in the 2002 Act, but have been tailored. Amendments 1 to 3 set up an asset-freezing procedure for foreign banks as one of the elements of the special resolution regime. Foreign banks are defined in Amendment 6. Amendments 9, 15 and 28 bring the asset-freezing procedures into the special resolution objectives in Clause 4, the code of practice in Clause 5 and the general conditions for the special resolution regime in Clause 7.
	The meat of the procedure is found in the new clauses and part inserted after Clause 165 by Amendments 146 to 156 and the associated schedule inserted by Amendment 209. These provisions are very similar to those found in the Anti-terrorism, Crime and Security Act 2001, but there is a crucial difference in the formulation of the basic power. Under the 2001 Act, the powers are based on the extremely broad formulation of the Treasury believing that action to the detriment of the UK's economy had been or was likely to be taken on the basis of action constituting a threat to the life or property of UK nationals or residents. Under Amendment 146, a freezing order would have to satisfy two conditions. Condition 1 is identical to the first two parts of condition A in Clause 8 for the use of private sector purchaser or bridge bank powers. The second condition is a refinement of the third leg of condition A in Clause 8 so that instead of relating to the protection of depositors generally, as in Clause 8, the new asset-freezing power focuses on foreign banks paying up in the case of UK depositors.
	I have not attempted to deal with the other main criticism of the asset-freezing power made by the Newton report; namely, the lack of an appeal or independent review process. I have merely attempted to lift the very general power in the 2001 Act and place it in the Bill as a tool that the authorities have used in the past and might need to use in future to deal with banking stability or depositor protection. In addition, I have not sought to repeal the 2001 Act because the Bill does not represent the comprehensive opportunity to alter that Act's powers in the way that the Newton report suggested. The aim is that the Treasury should look to the tailored powers put forward in these amendments rather than to the ones that were rightly criticised by the Newton report to be used in other contexts.
	I am sure that the drafting of some of the detailed amendments is open to criticism, but I hope that the Minister will recognise that for today's Committee these are probing amendments. They are designed to seek the views of the Government on why the Bill does not provide a comprehensive response to the financial and banking stability issues in the light of recent experience. They are also designed to be a modest contribution to making those powers more comprehensive and making the Bill a proper reference point for all those who seek to identify the Government's tool box in future financial crises. Importantly, they are designed to recognise the splendid work of my noble friend Lord Newton and the other members of that review, which has been ignored by the Government since it was written in 2003.

Lord Newby: We have some sympathy with the amendments. We were not as critical as the noble Baroness about the use of the Anti-terrorism, Crime and Security Act 2001 in respect of Landsbanki; we thought that the circumstances justified it. We have been very struck by the response of the authorities in Iceland, who felt that the fact that the powers had been exercised under an anti-terrorism Act justified a sense of grievance and began a legal action which, I gather, has now been withdrawn, because they felt that the powers had been improperly used.
	Everybody agrees that it is appropriate that the powers exist; the only question is the legal context in which they exist. The logical place for the powers, when dealing with banks, is in this Bill, rather than in an anti-terrorism Act. As the noble Baroness said, we could not put the powers in this Bill and simply delete them from the Act, because there are other circumstances that have nothing to do with financial stability in which we may want to use them. However, when dealing with financial and banking stability issues, the logical place for such powers is in the Bill.

Lord Newton of Braintree: I had not intended to intervene in this debate, but in view of the kindly remarks uttered by my noble friend from the Front Bench about the report of the committee that I chaired some five or six years ago—of whose membership at least one other, a very distinguished one, is in the Chamber—it is right that I thank her for raising those points and state that I, as did the entire committee, share the view that where there is what I think we called in the report "mainstream legislation", the powers should be included as opportunity arises in that mainstream legislation. This is clearly one opportunity and I, too, will listen with great interest to the Minister's response.

Lord Stewartby: I intervene only very briefly to ask the Minister to explain the definition of a UK institution, because under the first and second amendments that we are considering, "bank" is defined at the beginning of Clause 2 as being a deposit-taking UK institution. For that purpose, what is the definition of a UK institution?

Lord Myners: I start by noting the political good will to which the noble Baroness, Lady Noakes, referred. I am very grateful to noble Lords on the Benches opposite and to opposition Members from all parties in another place for the constructive spirit in which they have approached the Bill.
	The main effect of this group of amendments and additions to the Bill proposed by the noble Baroness, Lady Noakes, concerns the provision of asset-freezing powers in relation to foreign banks. I will endeavour for the benefit of the noble Lord, Lord Stewartby, to define a UK institution by reference to defining what is a foreign institution. Let me therefore start by giving a practicable and workable definition of what a foreign bank is for the purpose of the Bill and the amendments.
	I will assume that a foreign bank is one incorporated under the law of another jurisdiction, but which operates in the UK through branches established here. I will argue in a moment that we already have the powers we need to freeze the assets of such banks and that new powers are not needed, but there is a more fundamental practical difficulty that I bring to your Lordships' attention. Even if I agreed in principle with the noble Baroness that additional powers were needed for the purpose of freezing the assets of foreign banks operating in the UK, there would be serious practical limits to the applicability of such powers. As I said, a foreign bank is a bank that is incorporated under the laws of another jurisdiction but which operates in the UK through branches established here. This means that the UK branch of a foreign bank is not a UK entity. In fact, it is not an entity at all; it is only part of an entity—a foreign entity—and it has none of the legal personality that the entity has. A branch therefore owns no property, and it cannot enter into any contracts in its own name. It is therefore really only a convenient label for the foreign bank's operations in the UK and for its staff who happen to work here.
	There may be significant operations and lots of staff, the bank may operate from large and impressive buildings, the staff may be responsible for controlling and moving huge sums of money, and they may operate accounts that hold billions of pounds of deposits from people in the UK, but none of that means that there are necessarily any assets in the UK that could be frozen. The assets of a foreign company, of which the branch is the physical presence, may be held in the UK, but equally they may be held outside the UK; and, of course, the introduction of these asset freezing powers in the Banking Bill would make it much more likely that assets would not be held in the UK in the future.
	The second problem with the amendments is that even if there were substantial assets in the UK, which were controlled by a foreign bank with a branch here and which we wanted to freeze, they might not belong to the foreign bank. It would be very easy to set up a group structure in which the UK assets of the group were not the property of the foreign bank to which the freezing orders could be applied.
	This brings me to a third point. The noble Baroness referred to the concern about the use of powers in anti-terrorism legislation to freeze the assets of foreign banks. I see the difficulty, but it is about presentation not substance. Asset freezing powers on the statute book must be justified on their merits, and the statute in which they appear is not the issue. Such powers would be no more or less acceptable in a banking Bill than they would be elsewhere to those who find them unacceptable. The powers that are now proposed are intended to be targeted on and limited to foreign banks. For the reasons that I have just indicated, to make these powers effective one would also need to be able to apply them to the assets that belong to persons, companies or other legal entities connected with a foreign bank.
	This brings me to the scope of the power compared with that of the existing power in the Anti-terrorism, Crime and Security Act 2001. That power is available where the Treasury reasonably believes that a person or persons, being the resident or Government of a foreign country, have taken or are likely to take,
	"action to the detriment of the United Kingdom's economy (or part of it)".
	I hear with interest, as I have heard in previous debates, the great credit that has been given to the work done by the noble Lord, Lord Newton, in respect of this legislation, but I beg to suggest to noble Lords that this is not the moment to discuss that issue; this is the Banking Bill.
	The amendments tabled by the noble Baroness, Lady Noakes, would introduce conditions based on financial stability, the maintenance of public confidence, the protection of the depositors in the United Kingdom, and the fact that the foreign bank was unable or unwilling to pay its debts in relation to depositors in the United Kingdom. The existing power is in one sense broader, but in another sense it imposes a higher threshold before action is taken. There may be circumstances surrounding a bank failure in which the Treasury needs to consider its existing asset freezing power, and the conditions which noble Lords have identified in their suggested provisions are some of the factors that may be relevant to such a decision. Given that we already have freezing powers under the Anti-terrorism, Crime and Security Act that enable us to address threats to the UK economy, it would be confusing and unhelpful to create a further set of freezing powers.
	In a debate in this House on the Counter-Terrorism Bill, the noble Baroness, Lady Neville-Jones, the opposition Front-Bench spokesperson on security issues, said in relation to the asset freezing powers:
	"Part of the problem of legislation being brought forward in amendments to successive Bills is that we ultimately get—no doubt unintended—inconsistency, and duplication with minor variations of language. It becomes difficult for those who must obey the law. Consolidation would therefore be good for ease of reference and the avoidance of unintended inconsistency".—[Official Report, 11/11/08; col. 585.]
	I agree with the noble Baroness that it is preferable for anti-freezing legislation to be consolidated where appropriate. These amendments to establish a further set of freezing powers would create just the problem of overlap, uncertainty and potential inconsistency to which the noble Baroness, Lady Neville-Jones, referred.
	Finally, we have to recognise that the circumstances in which we would need to use such a power will be wholly exceptional. The recent case of the Icelandic bank, Landsbanki, to which the noble Baroness, Lady Noakes, referred, demonstrates this. Furthermore, while we certainly do not intend to use, or expect to need, the powers in the Banking Bill to deal with UK banks on a regular basis, we have to recognise that UK banks may sometimes get into difficulties. It will be the UK's responsibility to resolve them. But we would not normally expect to have to resolve foreign banks even if they had branches here. To put a power to freeze their assets in the Bill implies that it may be considered normal, rather than exceptional, for us to intervene when foreign banks are involved. That would seem to send quite the wrong signal. We have a power which we have used in exceptional circumstances. We do not need another one. I would suggest to Members of the Committee that UK banks operating in a foreign jurisdiction that took upon itself the powers to intervene as suggested by this amendment might question whether they wished to conduct business in that jurisdiction. That would not be an unreasonable question for foreign banks which currently and prospectively will continue to operate in the United Kingdom.
	The proposed amendments will not strengthen financial stability because we already have powers to apply asset freezes to protect financial stability under the economic aspects of the Anti-terrorism, Crime and Security Act. That was demonstrated in the case of Landsbanki. It is surely important that this Bill is focused on measures that will strengthen financial stability and not overlap with existing powers. The noble Baroness, Lady Noakes, chided that there is little in this Bill to deal with the causes of the current banking crisis. I would suggest that this Bill is less about current crises than about crises which may occur in the future and would have to be dealt with by this Government or by future Governments. It is a Bill about establishing a special regime to deal with the resolution of failed banks, rather than a Bill which attempts to speculate on the causes of the current problems. I therefore hope that the noble Baroness will agree to withdraw the amendments in her name.

Lord Higgins: In answer to the question posed by the noble Lord, Lord Stewartby, about definition, the Minister improvised a definition and indicated that it was quite difficult to do. Is there any such definition in the Bill? If so, where will we find it? One can see the argument against duplication, but one should not underestimate the fact that in passing terrorism legislation, the House is anxious that it should be used only for what the intention was in saying that it is to deal with terrorism. It is undesirable that we should suddenly find—indeed, it would deter us from going along on such a matter in the future—that terrorism legislation is being used for purposes that no one at the time had particularly noticed. Is there not a case for putting the proposal into a separate Bill if it is intended to use it in the context of banking legislation? The noble Lord says that there are powers already to deal with the point made by my noble friend, but I was not clear whether he was referring solely to the terrorism legislation or whether there are powers elsewhere which he had in mind.

Lord Myners: I thank the noble Lord, Lord Higgins, for pointing out the inexactitude of my reply to the question from his noble friend Lord Stewartby. I shall try to be more precise. UK institutions are defined in Clause 2(3) as,
	"an institution which is incorporated in, or formed under the law of any part of, the United Kingdom".
	Typically, it will be a UK-registered company.
	In respect of the noble Lord's second point, we may have to agree to differ on a piece of legislation that he refers to as the "terrorism legislation" and which I refer to by its full title, seeking to draw attention to the fact that it is applicable to a broad range of concerns that go beyond terrorism.

Lord Campbell-Savours: My noble friend knows that I am married to an Icelander and that I am in regular contact with my family in Iceland. The Icelandic people were told that the reason for using this legislation on terrorism was that there was no alternative; it was the only legislation available. The presumption that the people in Iceland made was that, when the opportunity arose, we would either amend the existing legislation or new legislation would be introduced. In doing so, we would show the Icelandic people that we were genuine in taking our original action. My noble friend appears to be backing away from that as a proposition and justifying the existence of legislation that the Icelandic people find offensive. I find it difficult to understand why there cannot be a little more flexibility in the Government's position.

Lord Myners: I am not sure how my noble friend came to the conclusion that we gave an indication or undertaking that we would change the legislation. The legislation used in respect of Landsbanki has, I believe, been highly effective in signalling that we will not tolerate discriminatory action by the Icelandic authorities that penalises UK depositors. The legislation has achieved its objective and was appropriate to the circumstances. It remains on the statute book and there is no need to duplicate it or move the provisions from one Act to another.

Lord Eatwell: An important element of my noble friend's reply to the noble Baroness, Lady Noakes, was that by accepting her amendments, he would discourage the formation of branches of foreign banks here in the UK. Is he aware that an important theme of the discussions of the Basle Committee, and a theme likely to be important at the G20 meeting in April, is precisely to discourage the formation of branches in foreign jurisdictions and replace them with subsidiaries in order to achieve regulatory consistency within any particular jurisdiction? Surely we should discourage branches which are then subject to overseas regulation by foreign regulators in which, outwith the EU, we may have no confidence.

Lord Myners: My noble friend speaks with considerable knowledge of this subject. However, there is the counter-view that the position of depositors and creditors is enhanced by being part of a branch with a claim on the ultimate parent company rather than a claim on a subsidiary with limited capital. There are two sides to this argument. Nevertheless, the issue of tensions between the home regulator and the host regulator and some practical issues which have arisen around deposit protection schemes under the directive are ones that my right honourable friend the Chancellor of the Exchequer has raised with the EU Commission and that we will put on the agenda for discussion in preparation for the forthcoming G20 meetings to be hosted in London.

Lord Bridges: Perhaps I may add a word to reflect a different point of view. I am a trustee of a charitable trust which had some money on deposit with a firm in London that was controlled by Landsbanki. We have succeeded in preventing this money being transferred against the wishes of our charitable purposes, and that was highly unpopular in Iceland. It is unfortunate that we seem to have a state of affairs in law that is capable of being misrepresented in Iceland but which does not reflect the wishes or intentions of the British Government. I hope that in reviewing this situation we will think about the effect of our actions, however justified they are, when they are misinterpreted abroad. That seems to be at the heart of this difficulty. I venture to mention this problem because I do not think that it has been fully brought out yet in this discussion.

Lord Myners: The noble Lord may be aware that I have expressed sympathy for the position of the people of Iceland in the difficult situation in which their banks have placed them. In our representations to the Government of Iceland we have made it clear that they should not regard us as accusing them of being terrorists. At the same time, we have made it equally clear to them that we expect them to comply with their obligations in respect of depositor protection and not to act in a discriminatory way against the interest of non-Icelandic depositors, as it appears was their inclination at one stage when they were suggesting that they were going to create "good" banks and "bad" banks, leaving the non-Icelandic depositors as claimants on the "bad" bank. As I said earlier, the action we took, regrettable as it was in the circumstances, has nevertheless proved effective as part of our representation to protect the interest of UK depositors.

Lord Bridges: The difficulty persists that we were justified in what we were doing but a foreign Government with whom we have normally had very friendly relations were able to misrepresent our actions and look at the legislation from an entirely different point of view. I hope that whatever decision is reached in this Committee will enable us to be more open with such a country and prevent it from distorting our actions, as Iceland did very effectively on this occasion to our considerable disadvantage.

The Archbishop of York: The law is there to express an intention. Suppose the Bill were about shipbuilding, and we knew that one of our ships had suffered tremendous difficulties with its construction. The Minister replied to the noble Baroness, Lady Noakes, that the Bill cannot anticipate future difficulties with the banks, which the Government of the day will have to deal with, and we are simply dealing with the situation as it is now. Would it not be wise, while legislation on banking is going through, to give some thought to the difficulties that have arisen and to which she has drawn attention, instead of simply saying, "We can't anticipate future dangers because the ship is sailing at the moment, although I know it's leaking and we can't get to port yet"? Would it not be wise to go back to the drawing board and find out whether the way the Bill was drafted is right?

Lord Myners: I support the sentiment expressed by the noble Lord, Lord Bridges, in respect of Iceland. If there was misrepresentation or misunderstanding, that was regrettable. Through our diplomatic agencies and intergovernmental contact we will continue to work to ensure that our position is well understood and correctly represented.
	The most reverend Primate challenges us to ask whether, if the ship is holed, we should be doing something about it. I seek to reassure the Committee that we are doing something about it. The actions we have taken to recapitalise the banks, facilitate funding and expand liquidity provisions are at the core of addressing those problems in this country, problems which, regrettably, are shared with many other countries. I suggest that over the next month or two we will see a serious programme of bank recapitalisations throughout the world, as other countries continue to follow the lead set in the United Kingdom.
	However, the purpose of this Bill, particularly where it deals with the special resolution regime, is to say that there is no method of regulation or supervision which will assure us that there is no prospect of failure. There is risk in business, and banking is an inherently more risky business than most. Accordingly, the Bill seeks to ensure that we have a wide repertoire of responses to deal with a failing bank should it, regrettably, be necessary to do so. Some of the powers embodied in the Bill which are contained in the current legislation which expires at the end of February have already been used very effectively to deal with failing banking institutions in this country, including Heritable and Bradford & Bingley.

Baroness Noakes: I thank all noble Lords who have spoken in this important debate, which covered not only the topic covered by the amendments but also the larger issue of whether the Bill covers all the things that need to be in the Government's repertoire in order for them to handle banking crises. The Minister chided me for saying that the Bill was not about dealing with the causes of the current crisis. Of course not, but it should be about reflecting what we have learnt since the beginning of the financial crisis and the things that we need to do to deal with it. That was the purpose of bringing together the asset freezing provisions in one place—I will come to some others later. In that way the Government, having brought forward this Bill to make provision on banking—although it is largely about failing banking—have a clear expression of what can happen in different circumstances.
	The Minister said that if we put these provisions in the Bill, it would be more likely that branches would be set up elsewhere. I take the point of the noble Lord, Lord Eatwell, that we do not want branches anyway, but assuming that we do, we already have the provisions in the 2001 Act. If we rephrase those specifically, we might actually reassure people coming to do business here rather than frightening them away. They should already be frightened away by the 2001 Act.
	The Minister gave us a little lesson on what a branch was and seemed to imply that the amendment's drafting did not take account of that. I tried extremely hard not to draft it in terms of branches but in terms of foreign banks; that was one of the things that I learnt a long time ago. But one is always open to criticism when drafting amendments.
	The noble Lord quoted my noble friend Lady Neville-Jones in the context of counterterrorism. I warn him not to quote my noble friends out of context. I can say with considerable confidence that she was speaking only of counterterrorism, not of the use of powers contained in counterterrorism-based legislation in other circumstances. So we can put that to one side.
	The Government's position has not changed since the report from the privy counsellors, led by my noble friend Lord Newton, back in 2003. The Government do not accept the point; they think that under the guise of counterterrorism—or anti-terrorism, as it then was—they can draft very wide powers, give the Bill a Long Title and then use it for everything. Their attitude is, "We originally meant this to apply to organised crime, but if we just call it crime, we can use the powers for anything". That is one approach to legislation, and it is clearly the Government's, but we do not think that it is responsible. That is what the Newton report highlighted. We should pull out those very unusual powers—the Minister said that they were to be used only in exceptional circumstances—and put them in their proper context. That is the problem with the 2001 Act; it is there to be interpreted as time goes on. That is why it is unsatisfactory suddenly to lift a power from other legislation and use it in the context of the banking crisis. The Minister said that it was not appropriate to put these provisions in this Bill because it is a banking Bill. Of course it is appropriate, because we are talking about a banking issue. That is what my amendments were specifically designed to do.
	However, the Minister said that the Government had not shifted from their position of liking broad legislation which they can pull out whenever they want rather than tailoring it to specific circumstances as was recommended by the Newton report. It is clear that we shall have to reflect further on that position. It weakens the Banking Bill's ability to reflect the full range of issues that, we know from experience, are likely to come up in relation to banking crises. To that extent, the Government's attitude weakens the Bill. I shall reflect further on what the Minister said, but, for today, I beg leave to withdraw the amendment.
	Amendment 1 withdrawn.
	Amendments 2 and 3 not moved.
	Amendment 4
	 Moved by Baroness Noakes
	4: Clause 1, page 2, line 2, at end insert—
	"( ) If there is any conflict between the roles of the Bank of England, the Treasury and the FSA, or if there is any disagreement between all or any of them as to their roles or responsibilities, the view of the Treasury shall prevail."

Baroness Noakes: I shall speak also to Amendment 5. The amendments would add two new subsections to Clause 1. They focus on the tripartite authorities and how they should work in practice.
	The Committee will be aware that the tripartite arrangements were invented by the Prime Minister when he was Chancellor of the Exchequer to provide some counterweight to the fragmentation which he caused when he set up the FSA and transferred to it some of the functions of the Bank of England. Many now criticise those arrangements; indeed, the critics are probably more numerous and vociferous than they were at the time.
	The plain fact is that the fragmentation was not remedied by the tripartite arrangements, and the three key actors, the Bank, the Treasury and the FSA, failed in their first real test in relation to Northern Rock. As the Northern Rock events unfurled it was very clear that there was no overall leadership in the tripartite authorities and that, within them, they had different views and interests.
	The FSA has published its own internal review of its handling of Northern Rock, which was pretty dreadful. We can therefore only speculate on what a truly independent review might have found. There have been no other publicly available reviews of the actions of the other players in the tripartite arrangements and no definitive reviews of whether the tripartite arrangements work, other than those undertaken by the Treasury Select Committee in another place. That committee has made many recommendations for improvement, some of which have inspired the thinking behind these amendments.
	The tripartite arrangements do not exist as a matter of law. They were not written into the Bank of England Act 1998 or the Financial Services and Markets Act 2000. They exist only because the Treasury, the Bank and the FSA say that they do in the form of a memorandum of understanding on how they expect to work.
	This Bill does, however, take us for the first time into the territory of defining in law who does what within the tripartite authorities in relation to banking and financial stability. They are called "the relevant authorities" in the Bill. It is perhaps a pity that an extra bit of terminology has been added to that of "tripartite authorities", but we welcome the attempt to clarify individual responsibilities.
	In another place, my honourable friend Mr Mark Hoban sought to tease out in Committee the interaction between the FSA's responsibilities and those of the Bank and the Treasury. The Bill appears to set out a linear process whereby the FSA triggers the use of a stabilisation power by determining whether certain conditions are met under Clause 7. By virtue of Clause 7(6), the FSA ignores the special resolution objectives set out in Clause 4, which we shall debate shortly. Before the FSA sets off the process under Clause 7, it has to consult the Bank and the Treasury, but nothing is said about what happens if there is a disagreement.
	Once Clause 7 is activated, the Bank or the Treasury can exercise its stabilisation powers under Clauses 8 and 9. Unlike Clause 7, these will be subject to the special resolution objectives in Clause 4 and, before they are used, the Bank or the Treasury has to consult the other two. Again, nothing is said about what happens if there is a disagreement.
	My honourable friend in another place posed the question of what would happen if the Bank or the Treasury disagreed with the FSA over whether the trigger should be pulled under Clause 7. He asked whether there could be a decision tree, showing how the various players operated. The answer seemed to be that, notwithstanding that the Bill appears to set out a linear approach, in practice all parties would consult each other all the time, and the process would be very much non-linear and did not need any process for disagreement.
	The Minister in another place said that the FSA would have regard to its own objectives and rule book under the Financial Services and Markets Act, rather than the special resolution objectives, but that would not be a problem because of all the interaction between the parties. He referred to the approach in the Bill as "clear and sophisticated". It is certainly sophisticated in the sense that it is complicated, but whether it is clear is a matter of opinion. The Bill is, frankly, not clear on the interactive nature of the process. It implies, as I have said, a logical step-by-step approach, which has clearly not happened in the past and will not happen in future. By assigning responsibilities in Clauses 7 to 9, the Bill creates the illusion of simplicity and clarity, which no one will expect to work in practice.
	My two amendments in this group address two aspects of these issues. First, Amendment 5 emphasises that, although there is a lot of notification and consultation throughout this Bill, there is a general obligation on the three parties to keep each other informed. As I understand it, that is the Government's intention, with the Bill merely highlighting some of the formal points of reference. On that basis, I hope that the Minister will accept my amendment.
	Amendment 4 is, perhaps, more controversial. It addresses unanswered questions that arose from the handling of Northern Rock. Who was actually in charge? Committees have never been good at running things, which is why in corporate structures and even political ones there is always somewhere the buck stops. This Bill is predicated on there being a unanimity of view among the tripartite authorities, but that does not even accord with historical precedent, let alone the potential in future, when different parties have, under this Bill, to have regard to different criteria.
	Amendment 4 says that the view of the Treasury should prevail if there are any disagreements. That should be the intuitive answer because, if something goes wrong, the Treasury alone can pick up any ultimate cost through its ability to pick the pockets of taxpayers. The Treasury is, therefore, the logical holder of the ring. We should not let this Bill go forward on the unrealistic basis that no one is actually in charge but that somehow the trinity of the FSA, the Bank and the Treasury will work to one accord at all times. If we do that, we will legislate for a fairy tale. Nice though that may seem, it is not a responsible approach to legislation—hence my amendments put forward the prospect of the Bill reflecting the real world in which we operate, and not some artificial construct conceived in the Treasury.

Lord Newby: As the noble Baroness says, this is a sophisticated not to say complicated Bill which assigns within it distinct roles to the bank, the FSA and the Treasury. As the noble Baroness pointed out, the powers that each is given are qualified by the requirement in the Bill that consultation take place at every point. Followers of the sorry saga of Northern Rock would agree that nobody came out of it desperately well, but I do not think that anybody would argue that the Treasury at every point absolutely had its finger on the pulse and that it, better than the Bank or the FSA, was able to exercise judgment in a way that subsequently seems satisfactory.
	What slightly concerns me about the first of the noble Baroness's amendments is that although at one level what she proposes is blindingly obvious, at the end of the day the Treasury always does call the tune. For example, during the Northern Rock saga, at one stage the Treasury informed the interim management of Northern Rock that it had to give preferred bidder status to Richard Branson at a time when that was not the view of the management, far less of the Bank or anybody else. The Treasury was calling the shots. But in that case, and in many others, the Treasury was proved to have exercised poor judgment. My shorthand way of opposing the amendment is almost to say, "Don't encourage this". If the Bill says that whenever the Treasury disagrees with the other actors in a saga it will automatically win, that will encourage Treasury officials to believe that they are in charge of every aspect of the workings of the Bill. I do not believe that that is a good idea. We will therefore not be supporting the amendment.

Lord Northbrook: I rise to say a few words on the amendment of my noble friend Lady Noakes. It is quite clear that the tripartite arrangements have not worked. The FSA's report into the handling of Northern Rock showed its weakness. Should not the Bank of England have the final view rather than the Treasury, as it is likely to be less biased?

Lord Stewartby: On the comment made by the noble Lord, Lord Newby, about whether it is a good thing to spell out bluntly that the Treasury is in the ultimate key position, this issue arises more generally. After all, we are only dealing here with a Bill that deals with the special resolution regime. We have a whole new tranche of provisions to come in another Bill, in which these things will have to be spelt out one way or another, just as there will need to be some sort of clause along the lines of Amendment 5. The lack of effective consultation between the parties—there may have been a lot of consultation, but we all know from the end result that it was not a very effective process—means that more clarity will have to be given to this. Although it is putting the cart before the horse, the Bill needs to contain some broad principles that will be defined for much wider application in an ensuing thorough Bill on banking regulation and related topics, which I understand is being worked on.
	A difficulty with this Bill is that we need to be as specific as possible to avoid any sort of gum-up of the system, as occurred because of Northern Rock and related issues. My view is that probably legislation has to say something about the view of the Treasury prevailing. Otherwise, we go back into a ring-a-ring o' roses situation and nobody knows exactly who is going to be in the key position.
	My noble friend has done us a service in bringing forward Amendments 4 and 5 because although they apply here only to the special resolution regime, they must be consistent with what is going to be done on a broader canvas when subsequent legislation comes forward.

The Archbishop of York: Before other banks came into being, only the Bank of England was entitled to introduce legal tender. Then we created another currency called credit. Those banks in some ways are doing the same. I think that the Bank of England should ultimately take the decision. The introduction by the present Government of interest rates being governed not by the Treasury but by the Bank of England has created far better stability and better transparency and therefore they are not liable to political manoeuvrings. Even the best civil servants are still liable to political manoeuvrings. I will not welcome the amendment, but perhaps the ultimate decision ought to lie not with the Treasury, although it is answerable to Parliament, but with the Bank of England, which can turn up at the Select Committee, and its chairman can be quizzed on the decision. It is dealing with banking day by day, with an interest in the entire economy as opposed to banks that are just interested in their shareholders. Perhaps, when there are difficulties, the decision ought to lie with the Bank of England, not the Treasury. However, the clarity of the noble Baroness's argument is irrefutable.

Lord Mackay of Clashfern: I would have thought it a necessary condition of an effective organisation that the buck should stop somewhere. It is therefore important that somebody—some group or institution—should have responsibility for the ultimate decision. In the Bill, the ultimate decision is with the FSA. Clause 7(1) says:
	"A stabilisation power may be exercised in respect of a bank only if the FSA is satisfied that the following conditions are met".
	It does not say, "A stabilisation power may be exercised by the FSA only". So if the FSA is not satisfied, it does not matter what the Bank of England or the Treasury think. Clause 7(1) seems to mean that its power to make stabilisation orders will not be affected.

Lord Myners: As this is my first experience of taking a Bill through Committee, I shall endeavour in my response to these amendments not to fall into the trap of chiding the noble Baroness, Lady Noakes, or teaching the Committee lessons, and certainly never that of quoting any Member of the Committee out of context.
	To address the noble Baroness's points on Amendment 4, the Government believe that there should be a clear role for the FSA, the Bank of England and the Treasury in the special resolution regime. These roles should be in line with their expertise, and are accordingly mandated with, as the Minister said in the other place, a clear and sophisticated model. The FSA should be responsible for assessing whether a firm should enter the SRR, and the ongoing supervision of any firm while it continues to operate in the SRR. In that respect I agree with the noble and learned Lord, Lord Mackay.
	The Bank of England should be responsible for the operation of the SRR and the tools within, other than temporary public ownership. The Treasury should be responsible for public finances and the overall public interest. The Treasury will also lead on the decision to take a bank, or bank-holding company, into temporary public ownership. This position has been consulted upon and is widely supported by stakeholders.
	Of course, the authorities will continue to work closely together both prior to and during the period for which a bank is subject to the measures of the special resolution regime. This has been demonstrated during the recent resolution of actions on financial stability. As Members of the Committee will know, I have only been a Member of the House of Lords for a relatively short period of time. Before that, I was actively involved in the banking and financial sector. I was an observer from the outside of most aspects of the tripartite process. Over the past three months, I have had an opportunity from the inside to see how the tripartite process works. My judgment is that it works a lot better than many would suggest. It may appear that these separations of responsibility in themselves give rise to scope for conflict, tension or, conceivably, for nobody owning a particular issue; "Who's in charge?" was the question that Mr McFall put to the Government at the Treasury Select Committee. But the reality is that the tripartite authorities all have a shared responsibility that draws upon their specialist area of expertise and which gives them particular focus on different aspects of how the tripartite arrangement works. Therefore, I respectfully do not agree with the amendment proposed by the noble Baroness, Lady Noakes. The Banking Bill provides for the roles that I have just set out for the authorities, providing in each case a lead authority. For example, Clause 9 provides the Treasury only with the power to take a bank into temporary public ownership. Clause 7 makes it clear that the FSA is the lead authority in deciding that the general conditions for entry into the SRR are met, as the noble and learned Lord, Lord Mackay, drew to the Committee's attention.

Lord Lamont of Lerwick: I wish to ask the noble Lord a question on that point. I am sure that he will know the answer immediately and I attempt only to get clarification, but why is it that in Clause 7(6) the special resolution objectives are not relevant to conditions 1 and 2, the threshold conditions and timing and other relevant circumstances respectively? I appreciate that the objectives listed in Clause 4(4) to (8) are rather general but I do not understand why they are excluded. I appreciate that the noble Lord seeks narrow action as opposed to background economic conditions but they seem relevant.

Lord Myners: The noble Lord, Lord Lamont, answered his own question in his final comment. As I was saying, the FSA is the lead authority in respect of entry conditions for the SRR. For the exercise of each power the Bill is clear about which authority is the lead one.

Baroness Noakes: For the sake of the whole Committee, perhaps the Minister might expand on the way in which he responded to the point of my noble friend Lord Lamont. He did not quite answer it. It would be helpful if he explained the answer to the Committee.

Lord Myners: I beg the Committee's indulgence in allowing me to come back to that point in a moment.
	I also do not agree with the proposed amendment that would make the Treasury the authority with the final say. In particular, the independent regulator should make any regulatory decision, such as the decision that a bank is failing its threshold conditions—that is part of Clause 7. It is, of course, absolutely right that Ministers lead in matters that affect public funds or the wider public interest. Again, the Bill provides for this. That may well be at the heart of the observation of the noble Lord, Lord Newby, about the relative strength of the Treasury and the particular circumstances in which that strength is of considerable relevance to the operation of the tripartite arrangement. I therefore beg the noble Baroness to agree to withdraw the amendment.
	I understand that the purpose of Amendment 5 is to require that each of the authorities keeps each of the others informed of their actions, considerations and decisions. I shall set out why I do not believe that this amendment is necessary. I agree that consultation between the authorities on these matters is essential, as I said. The authorities will, of course, work closely together prior to and during any situation where a bank is failing. This has been demonstrated during recent action taken under the special provisions Act and with regard to other actions to protect financial stability. It is clear to me that the authorities have demonstrated a capacity to work collegiately and effectively in handling challenging situations. I believe, however, that the amendment is unnecessary as where the Bill confers powers on a lead authority it also requires consultation with the other two authorities. For example, I draw the Committee's attention to Clause 7(5), Clause 8(3) and Clause 9(4). I hope that my explanation has satisfied the noble Baroness that appropriate provision is made for consultation in the Bill. I therefore beg her to withdraw the amendment.
	If I may, I shall come back to say a little more in response to the comments made by the noble Lord, Lord Lamont of Lerwick. The FSA is taking regulatory action under the Financial Services and Markets Act; it is not taking action under the SRR. It is deciding whether the SRR should apply. The SRR objectives cover how the stabilisation options will be implemented.

Baroness Noakes: Before I move on to more general points, I want to come back to the Minister on that point. The conditions in Clause 7 on which the FSA must satisfy itself are in the context of the special resolution regime; they do not exist for their own sake. They are there only in the context of the special resolution regime. Therefore, the question has to be asked: why is the FSA making a decision under Clause 7 without reference to the special resolution regime? The FSA could make a decision under Clause 7 that had no implications for the issues raised in Clause 4, yet those issues must be taken into account by the Bank and the FSA in the exercise of the stabilisation powers. We do not believe that that conflict has been adequately explained, and, with respect, we do not think that it was adequately explained by the Minister just now. Perhaps he would like another go.

Lord Myners: I am disappointed that I did not pass the test. Where the bank or the FSA applies to have a bank placed in the bank insolvency procedures, both the general conditions must be satisfied. Additional conditions must be satisfied that relate to the conventional test for entering insolvency procedures—for example, principally if the bank is unable or is likely to become unable to pay its debts. The general conditions do not apply where the Secretary of State applies to have a bank wound up on the basis that this is fair. This reflects the Secretary of State's historic and rarely exercised jurisdiction to apply to have any firm placed in insolvency procedures on the grounds of the general public interest, which is separate from the SRR.

Baroness Noakes: As we say in Committee, I shall have to read that in Hansard. Perhaps I could respond more generally to the debate that we have had on Amendments 4 and 5.
	I thank all noble Lords who have taken part in the debate. The one thing that has emerged is that there is no unanimity on who should be in charge. The Minister rightly said that Mr John McFall in another place asked that question during the Northern Rock crisis and got no answer. Today, we have had two votes for the Bank of England, a couple of votes for the Treasury and a couple of votes for no one. Perhaps there is no unanimity of view in Committee on the way forward. A serious issue remains—that the Bill, by implying that somehow everything will come out harmoniously, misses the point. In a practical sense, when things start to go wrong, leadership has to be exercised, and you cannot expect a committee or a set of three or more organisations to exercise collective leadership, because that simply does not work. If the Minister has any examples from his wide experience in the commercial world, I would be pleased to hear from him, but I have not come across any. I continue to think it important that someone should be in charge.
	My other point related to needing to ensure that all parties are kept informed. The Minister referred to the primary clauses powers in Clauses 8 and 9, where there clearly are some cross-reference points, and there are some other clauses with cross-reference points. There are also some other powers that are taken in the Bill that do not have explicit cross-reference points, yet one would imagine that the tripartite authorities would be keeping themselves informed on a much more detailed basis. My point remains that the Bill does not describe the workings of the tripartite authorities in relation to cases of bank failure, and that is a pity.
	I shall read the noble Lord's explanation in Hansard to see if it makes more sense on the printed page than it did when I heard it and I will consider further whether I shall return to this matter on Report. I beg leave to withdraw the amendment.
	Amendment 4 withdrawn.
	Amendment 5 not moved.
	Clause 1 agreed.
	Clause 2: Interpretation: "bank"
	Debate on whether Clause 2 should stand part of the Bill.

Lord Eatwell: I am rather puzzled that in subsections (6) and (7) there is forward reference to conditions on building societies and credit unions, but there is no forward reference to the conditions which my noble friend plans to introduce with respect to bank holding companies and investment banks. Why are they not there?

Lord Myners: I thank my noble friend for giving me notice of that question. I will reflect on whether that is necessary and come back to the Committee.
	Clause 2 agreed.
	Amendment 6 not moved.
	Clause 3: Interpretation: other expressions
	Amendment 7
	 Moved by Baroness Noakes
	7: Clause 3, page 3, line 4, at end insert ", and
	"temporary" means a period which is not expected to exceed 3 years."

Baroness Noakes: The amendment adds a definition of "temporary", as in "temporary public ownership", to the end of Clause 3. The term "temporary public ownership" was first used in recent times in relation to the nationalisation of Northern Rock. I imagine that the use of "temporary" gives the act of nationalisation a more acceptable face. "Temporary" has never been defined in the case of Northern Rock and Ministers resisted saying how long they expected the bank to remain in public ownership when nationalisation was first announced, and they have been no clearer subsequently. Northern Rock remains in existence; it is trading with the benefit of public backing and is immune from the disciplines of the capital markets. Is the Minister yet able to tell noble Lords when Northern Rock will cease to be in temporary public ownership?
	Bradford & Bingley is similarly shrouded in mystery. The deposit book and the branch network were transferred with great speed, which is presumably what a bridge bank would be there for, but the rump of the mortgage book seems destined to remain in public ownership for some time. We have not seen the promised business plan which for a run-off organisation cannot be complex to draw up. We have been told virtually nothing, as has been outlined in previous debates in your Lordships' House. Is Bradford & Bingley in temporary public ownership or is it in indefinite public ownership? We should be told.
	The phrase "temporary public ownership" is used throughout the Bill as if it had real meaning. We have to assume that the adjective "temporary" is deliberately placed in the Bill and is intended to add something to "public ownership". If that is the case, we ought to know what sorts of timescales the Minister has in mind.
	My definition refers to a period not expected to last more than three years. That does not mean that public ownership could not last more than three years, but it is intended to show that the power to initiate temporary public ownership in Clause 9, which we shall debate in due course, should, when it is exercised, be an expectation of a relatively short period, because if a longer period were involved it would not be temporary, and the Government should make specific primary legislation—as has been the case with all other nationalisations.
	I am not wedded to three years as the definition of "temporary", but if the Government can see only an indefinite period, as appears to be the case with Northern Rock and, possibly, the rump of Bradford & Bingley, either they should come clean and say that they cannot sign up to the ownership being temporary or they should look at one of the other options in the Bill. This is not just a debate about semantics; it is about honesty. This Bill spins a convenient line that the Government have eschewed old fashioned nationalisation for a new temporary version. If that is the case, the Government ought to be prepared to nail their colours to the mast and to say exactly what they mean by "temporary". I beg to move.

Lord Newby: I agree with the noble Baroness to the extent that I consider the word "temporary" to be unacceptable. Either it means something or it means nothing. In reality, it is pretty meaningless. Contrary to what the noble Baroness said, it is impossible and undesirable to define what "temporary" might mean in the context of the Bill. Let us take the case of Northern Rock. It seems to me that the Government have set a tight timetable for Northern Rock to pay back the money that it has received. That is what has been said. In setting that timetable, I believe that the Government have imposed unacceptable pressures on the management of the bank to pay the money back, and that is why Northern Rock, more than any other bank, is being harsh in relation to repossessions. It is under the cosh from the Government to get the money back as quickly as possible and is not following what many people think are currently responsible policies. Therefore, setting in the legislation a limit of three years or anything other than a very long period could, in certain circumstances, of which Northern Rock is one example, require the management of a nationalised or partially nationalised bank to pursue unsatisfactory policies.
	I do not like the use of "temporary". As the noble Baroness said, it has been included to make an ideological rather than a legislative point. I do not think that she or anyone else believes that the Government have become involved in nationalising Northern Rock or any other institution on ideological grounds. Quite the opposite: the Government tried desperately to avoid nationalising Northern Rock, even when it was the most blatantly obvious thing to do. However, constraining "temporary" in the way that she does is not acceptable to me. I would rather delete it altogether, and perhaps that is what we should do.

Lord Blackwell: I have some sympathy with my noble friend's amendment but, like the noble Lord, Lord Newby, I wonder whether three years is a slightly arbitrary timescale. It seems to me that the intent behind "temporary" is important. The intent is for this legislation to be used to bring about restructuring, and I wonder whether an alternative way of achieving this objective is to require the Government, at the point that the legislation is used to bring a bank into public ownership, to indicate what timescale they believe is necessary to achieve a restructuring. It may be three years but in some cases, realistically, it may take longer to get a bank back into private ownership. However, if at the time they used the powers the Government were prepared to define the timescale, they could be held to account against that timescale to ensure that temporary did not become permanent.

Lord Eatwell: The noble Lord, Lord Blackwell, is right that the use of "temporary" is a declaration of intent rather than a specification of any length of time. However, I think that he is wrong to go on to say that perhaps we should specify a time longer than three years. The special resolution regime before us derives from that introduced in the United States in the case of Continental Illinois National Bank & Trust Company. In due course, most of the structures of Continental Illinois were returned to the private sector but it took more than a decade for that to happen. Given that one cannot predict economic circumstances, especially financial circumstances, with any accuracy even a year ahead—let alone three years or even more—putting any form of time limit on a movement in temporary public ownership would be a mistake. However, retaining "temporary" as a declaration of intent to which the Government can be held is important.

Lord Higgins: The point that has just been made is important. I agree that setting a specific time period is not sensible but the intention should be made clear. It should be said that "the arrangement shall be temporary and shall not become permanent", or some phrase to that effect. It is important to include the intention.

Viscount Eccles: Apart from the intention, it is important to declare how that intention is being pursued, and presumably that will be by way of business plans. I recall asking the noble Lord on a previous occasion what "temporary" meant and he said that the best he could do was to say that it was not permanent. However, that does not seem enough. When you go into something, it is important to have a clear idea of how you might exit again and to report on progress towards that exit.

Lord Turnbull: We are having a semantic debate about "temporary", but it seems to be based on an assumption that there is an entity which is taken into the public sector, and that there is an entity which is ultimately returned to the private sector. That may not be the case at all. You could take a bank into public ownership, and the bank could be broken up into different pieces, from different assets at different times, and different liabilities could be disposed of. You may end up with a husk of the name of Northern Rock remaining in the bank's ownership for years, but effectively it would have been disposed of. I do not think that there is an entity to which one can apply the term "temporary". You take something into public ownership and deal with it, which is not simply limited to the option of selling the entity that you bought in the first place. I am rather with the noble Lord, Lord Newby, that temporary probably has not much relevance as you cannot define the object to which it applies.

Lord Mackay of Clashfern: At an earlier stage, the Minister distinguished between presentation and substance. Judging from what we have heard so far, this word looks like presentation rather than substance. I should be interested if the noble Lord, Lord Eatwell, could elaborate a little on what he said about the way in which the Government might be held to the arrangement that was said to be temporary. How do you hold the Government to a temporary arrangement when you cannot say with any degree of precision what "temporary" means?

Lord Myners: Before I address the amendment, which I hope to do with a clarity that does not require the noble Baroness, Lady Noakes, to have to refer to Hansard to understand my answer—I apologise if I was not clear—I should perhaps start by reminding noble Lords of the rationale for including temporary public ownership as a stabilisation option under the SRR. The private sector purchaser and the bridge bank stabilisation options are the key resolution tools, and the powers to effect them have been conferred on the Bank of England. In some situations, it may be appropriate to take a bank into temporary public ownership. I shall come back to the meaning of "temporary" in a moment, if I may.
	For example, temporary public ownership is likely to be the most suitable resolution option in situations where the Treasury has provided a failing bank with a significant amount of public money to stabilise it; or where wholesale and long-term restructuring is required to return the bank to the private sector; or where the bank is subject to a very fast-burn or complex failure, such that there is insufficient time or means to effect a property transfer or share transfer to a private sector purchaser without significant risk. Those three examples are all characterised by considerable uncertainty, which is why it is difficult to be precise on how long a temporary period of public ownership might last. This is the option under the SRR which deals with the most complex and difficult-to-solve situations. The transfer to another bank—the bridge bank—is by contrast relatively simple and straightforward, so that option would be used only in the most serious and complex situations. Not surprisingly, the authority to use this power is reserved to Ministers.
	Temporary public ownership provides a stable platform for restructuring a bank's business. Again, that can take some considerable time, bearing in mind the fact that there may be considerable chaos in the banking system and that the difficulties may not be unique to one particular institution but common to many. My own business experience and that of many others in this Committee suggests that it is not a good idea to have a deadline, which I know is not the purpose of the amendment, because the time that it might take to give effect to such a resolution regime may be much longer.
	Under the powers provided by the Banking (Special Provisions) Act 2008, Northern Rock and Bradford & Bingley were taken into temporary public ownership. In answer to the question from the noble Baroness, Lady Noakes, Bradford & Bingley is in temporary public ownership. As noble Lords will know, it is the Government's intention that Northern Rock and Bradford & Bingley will in due course be managed at arm's-length by UK Financial Investments Limited. While details are still to be finalised, and provision will need to be made on a case-by-case basis, it is likely that any other bank taken into temporary public ownership would also be managed at arm's-length by that body.
	Amendment 7 aims to provide a strong indication that the period for any temporary public ownership will be less than three years. I agree that it is the ultimate aim and priority to return any government-owned bank to the private sector. What do we mean by "temporary"? The noble Viscount, Lord Eccles, reminded me of my earlier comments on that. I define temporary as not indefinite and not permanent. This is a clear expression of intent, and I took some comfort, at least in part, from the noble Lord, Lord Higgins, on that point.
	In my earlier observations about the difficulties that one might experience in going through this process, I hope I found some resonance with the noble Lord, Lord Blackwell, in saying that even if one were to put a period in the Bill, it is difficult to know whether it should be two years, three years or five years. It all depends on the circumstances. It is important that this House and the other place will be able to hold the Government to account, and if the Opposition believe that the Government are abusing the temporary nature of this provision, they will, no doubt, be vigilant in challenging that situation.
	As the noble Lord, Lord Turnbull, noted, under this option, there can be multiple outcomes, which suggests that putting a finite period on a reporting obligation is tricky. The key issue is that this is a clear declaration of intent. The Government do not wish to acquire banks for some political or social purpose. As the noble Lord, Lord Newby, pointed out in the context of Northern Rock, it was not our preferred outcome but, in the circumstances, it was the right outcome. I do not believe that setting a timing objective in legislation is helpful, even when, as in this amendment, there is flexibility. I appreciate the intention behind the flexibility in the proposal from the noble Baroness, Lady Noakes.
	I have previously outlined some of the situations where temporary public ownership may be beneficial; for example, where the Treasury has invested significant amounts of public money in a bank. In such situations, the judgment about when to return such a bank to the private sector should be determined by the public interest of protecting public funds as well as other SRR objectives. I have already reiterated that it is not the purpose of this legislation to do anything other than to hold banks in public ownership for as short a period of time as is consistent with other objectives relating to financial stability and protecting public funds.
	I believe the Government have demonstrated their clear intention to run the banks in which they have taken shareholdings or which they have acquired on an arm's-length basis to support an as-rapid-as-possible return of those institutions to the private sector. I therefore request the noble Baroness to withdraw her amendment.

Baroness Noakes: Perhaps I may just clarify one thing with the Minister before I decide what to do with the amendment. He said about the banks taken into so-called temporary public ownership that Parliament would be able to hold the Government to account in that respect. Later amendments in the Marshalled List concern parliamentary accountability, but can he tell the Committee how that parliamentary accountability works and how the Government can be held to account under the framework set out in the Bill for keeping to temporary public ownership objectives?

Lord Myners: I beg the indulgence of the Committee; I am still making progress on my learning curve. In my experience of answering Questions at the Dispatch Box on Bradford & Bingley, Northern Rock and other areas where the Treasury and the Government have involved themselves—been obliged to involve themselves—in banks, I have regularly felt that I have been held to account. That is what I had in mind.

Baroness Noakes: The Minister misses the point. When the Government have to bring business before the House, it is right that we are given an opportunity to ask questions about those things, but there can be very long periods—sometimes whole years—when no business has to come before the House and therefore there is no natural opportunity either here or in another place to consider such issues, except through the mechanisms of Select Committees of either House. I was asking the Minister to expand on his comment that Parliament could hold the Government to account.

Lord Myners: In making that comment, I was absolutely minded of Parliament's ability to hold the Government to account through Questions and Select Committees. Of course, those banks will publish their accounts.

Baroness Noakes: As I mentioned earlier, we have other amendments on the Marshalled List to deal with accountability, and I shall be asking the Minister to answer in more detail how parliamentary accountability can be achieved for those banks that are taken into public ownership. We will come to that in due course.
	The Minister set out why the temporary public ownership was needed. That is why I did not table a Motion to oppose Clause 9 stand part. In the spirit of good will and letting the Bill go through, we have accepted that temporary public ownership is an appropriate power to have, provided that it means temporary—that was the purpose of my amendment. I accept that it is very difficult to define the period and am conscious that when banks run into trouble, the rump can take a very long time to deal with but, importantly, the noble Lord, Lord Eatwell, and my noble friends Lord Blackwell and Lord Higgins teased out that the question of intention is important and that the Bill should not be used as a guise to achieve bank nationalisation, to put not too fine a point on it.
	I will reflect on our debate today, which has been interesting. It would not be right to table an amendment that said that temporary was not indefinite and not permanent; I think that we could do better than that in a way that better reflects intention than the current amendment. It is important that we should address to distinguish the Bill from nationalisation, which should be undertaken on a case-by-case, Bill-by-Bill basis. On that basis, I beg leave to withdraw the amendment
	Amendment 7 withdrawn.
	Clause 3 agreed.
	Clause 4 : Special resolution objectives
	Amendment 8
	 Moved by Baroness Noakes
	8: Clause 4, page 3, line 8, after "to" insert "all of"

Baroness Noakes: I will speak also to Amendment 18. Amendment 8 adds the words "all of" to Clause 4(2). This would require the tripartite authorities to have regard to all the special resolution objectives set out in Clause 4. Amendment 18 would require the code of practice issued under Clause 5 to set out how the objectives are to be balanced.
	It was clear from the debates on this clause in another place that the Government are very unwilling to prioritise the various objectives listed in Clause 4. Indeed, subsection (9) says that they are,
	"to be balanced as appropriate in each case".
	I am not sure what "balanced as appropriate" means in practice, and perhaps the Minister will assist the Committee on that. The evidence to date is that the protection of depositors, which is objective 3, has been the dominant objective in the Government's mind in their various interventions to date.
	Let me give the Minister an example on which to base his reply in due course. Objectives 1 to 3 may well involve some cost to public funds. How are those objectives in practice to be weighed against objective 4, which is to protect public funds? There is no appeal procedure against the use of the special resolution regime, with the possible exception of a judicial review, which is a blunt tool. Thus it is important to financial markets generally, as well as to those who might be targeted by the Bill, to know how its provisions are to be used in practice. How this process of balancing is to take place is one element of that, which is why Amendment 18 calls for the balancing process to be a part of the code of practice.
	Amendment 8 is a variant of this, and would make it clear that the relevant authorities must have regard to all the objectives set out in Clause 4. That is important in relation to the need to protect public funds, because objective 4 might be less obvious to those in the FSA and the Bank of England than, say, to those in the Treasury. It is therefore important that those in the Bank of England and the Treasury take that into account when they approach their responsibilities under the Act.
	Later amendments seek to add to the list of objectives. Of course, my comments on this amendment apply equally to Clause 4 if it is amended in line with those amendments. I beg to move.

Lord Lamont of Lerwick: Perhaps the Minister could help the Committee by clarifying the consistency of Clause 4(2) with the point that I raised about the last but one amendment to Clause 7(6). He will recall that I asked why the special resolution objectives were not relevant to condition 1, where a bank was likely to fail, or to condition 2, where a bank did not reach the threshold conditions. He gave a reply which I am sure was very accurate but which was rather difficult to follow at the time. No criticism is implied, but I think that that was the situation for some Members of the Committee.
	I took the Minister to be saying that the special resolution objectives were more general background objectives, although I have difficulty seeing how objective 3, to protect depositors, is not relevant to condition 1, where a bank is likely to fail. However, I do not want to go back to the argument about the previous amendment and the previous clause. I am sure that this matter can be clarified, because these things are often much simpler than they appear, but why are the special resolution objectives, which relate to the stabilisation powers, not relevant to conditions 1 and 2, although they relate to a stabilisation power? In Clause 4(2), which cites the stabilisation powers, we are told that the authorities,
	"shall have regard to the special resolution objectives"—
	namely, objectives 2, 3 and 4. How are the two parts of the legislation consistent?

Lord Blackwell: The Bill states:
	"Objective 5 is to avoid interfering with property rights".
	Clause 4(9) states:
	"The order in which the objectives are listed ... is not significant; they are to be balanced as appropriate in each case".
	In considering this amendment, we need to understand whether the objective,
	"to avoid interfering with property rights in contravention of a Convention right",
	is merely something to be balanced against other objectives or whether it has an absolute priority. Are the Government saying that if they believe it appropriate to override the convention right in order to protect funds, Objective 5 can be dismissed or put to one side? Is it just another objective to be balanced or does it have an absolute right of primacy?

Lord Myners: I do not think that Amendment 8 is required. I believe that the purpose behind the amendment is to ensure that the authorities have regard to all the objectives of the special resolution regime; that is, they cannot ignore one or more of the objectives when undertaking action within the special resolution regime. The Bill lists five objectives to which the authorities must have regard when taking action within the special resolution regime. Those objectives are,
	"to protect and enhance the stability of the financial systems of the United Kingdom ... to protect and enhance public confidence in the stability of the banking systems of the United Kingdom ... to protect depositors ... to protect public funds ... to avoid interfering with property rights in contravention of a Convention right (within the meaning of the Human Rights Act 1998)".
	In response to the observation from the noble Lord, Lord Blackwell, my interpretation is that it is not intended that that should override our obligations or the obligation to property rights under the Human Rights Act 1998.
	I believe that the requirement to have regard to all the objectives is already implicit in the Bill as its drafting does not refer to "one or more" of the objectives but simply to,
	"the special resolution objectives".
	That fact is reinforced in the code of practice, the draft of which states that,
	"the Authorities must consider the effect of their likely actions (including inaction) and assess them in the light of the objectives".
	For that reason, I do not believe that the noble Lord's amendment is necessary.
	As Members of the Committee may know, further information and explanation of the special resolution regime objectives is set out in the draft code of practice. However, while the Bill is clear that the authorities should have regard to all the objectives, the code also makes it clear that the specific relevance and application of the objectives may change; for example, as the threats to financial stability change over time or depending on whether public funds have been invested in a bank or decisions affect public funds. Furthermore, the Bill and the code state that the objectives have not been ranked. That is important because it recognises that the relative weighting and balancing of objectives will vary according to the circumstances of each bank failure, including circumstances specific to the failing institution and general circumstances relating to the wider financial system. I will consider this point in more detail when I respond to the noble Baroness's second amendment in this group. However, this point does not change the fact that the authorities need to consider each of the SRR objectives. For those reasons, I would ask the noble Baroness not to press this amendment.
	Amendment 18, on balancing the objectives, states that the code of practice under Clause 5 should include provision on,
	"how the special resolution regime objectives are to be balanced against each other".
	Perhaps I may set out why such an amendment is unnecessary.
	As the noble Baroness and other Members of the Committee will be aware, one of the main purposes of the code of practice is to provide guidance on the SRR objectives as set out in the Bill. Part 1 of the draft code of practice, on which we have recently consulted, includes information on the meaning of the objectives, the authorities' regard to the objectives, and the balancing of the objectives. It is no accident that the code already includes detailed provision for each of these areas. Clause 5(2)(a) states that the code may provide guidance on,
	"how to achieve the special resolution objectives".
	For this reason, I do not believe that the proposed amendment is necessary.
	The matter of how the authorities balance the objectives in each case is important. As each resolution will be different, the Bill makes clear in Clause 4(9) that the objectives are to be,
	"balanced as appropriate in each case".
	The draft code also indicates that the,
	"relative weighting and balancing of objectives will vary according to the particular circumstances of each failure, including ... circumstances specific to the failing institution; and ... general circumstances relating to the wider financial system".
	Allow me to provide an example of how the weighting of an objective may change. The objective to protect public funds, for example, will become more relevant to the treatment of a bank within the SRR once significant amounts of public funds have been invested in it. Before such an investment, the objective would have been about avoiding contingent risk to public finances. Once an investment is made, however, the objective becomes more important as public funds are now actually committed.
	We will reflect, following the consultation on the draft code and the observations made both in this House and in the other place, on whether further information is needed. However, as I set out, I believe that the intention behind the amendment is already covered in the drafting of Clause 5. I therefore urge the noble Baroness not to press the amendment.
	The general conditions of Clause 7 demarcate the boundary between when the stabilisation powers of the SRR can and cannot be used. They are preconditions and their satisfaction does not authorise action. The provisions which authorise the use of specific tools are found in Clauses 8 and 9. I hope that that provides further satisfaction for the noble Lord, Lord Lamont of Lerwick.

Lord Higgins: Perhaps the noble Lord can clarify one point. I am somewhat concerned about the drafting because we appear to start with the objectives and then turn to how the relevant authorities will deal with them, rather than the other way round. Does Clause 4 say that each and all of the relevant authorities shall be able to use the stabilisation powers, the bank insolvency procedures and the bank administration procedures, or is the intention in fact that the Treasury will have one lot of powers, the FSA another lot, and so on? I am unclear about the extent to which the drafting ties this provision down as tightly as it should by using the term "relevant authorities" in the first two subsections of Clause 4. I hope that I have explained the point clearly.

Lord Myners: I wonder if the noble Lord will indulge me and explain the point once more. I do apologise.

Lord Higgins: The beginning of Clause 4 refers to the relevant authorities having regard to special resolution objectives when they use the stabilisation powers, the bank insolvency procedure or the bank administration procedure. Is it intended that the Treasury, the FSA and the Bank of England shall each be able to use these powers?

Lord Myners: I believe that that is the intention.

Lord Mackay of Clashfern: Is it not the case that Clause 8 provides powers for the Bank of England and Clause 9 powers for the Treasury? In both cases, the preliminary conditions of Clause 7 must be held to be satisfied in the view of the Financial Services Authority. Will the noble Lord help me with regard to the relationship between Objective 1 and Objective 2? Do the financial systems of the United Kingdom include the banking system of the United Kingdom? I would have thought that they do. If some financial systems are not part of the banking system, is not confidence in these also important, because confidence appears to be related only to the banking system? I would be glad of an explanation of the way in which these words have been chosen.

Lord Myners: I express my thanks to the noble and learned Lord, Lord Mackay, who I think has helped to provide the right answer to the question posed by the noble Lord, Lord Higgins. The drafting reflects that all parties will be consulted but that specific authorities are vested with specific tools. Objective 1, which the noble and learned Lord also draws attention to, is,
	"to protect and enhance the stability of the financial systems of the United Kingdom",
	whereas objective 2 refers to,
	"public confidence in the stability of the banking systems of the United Kingdom".
	With regard to our earlier discussions on Landsbanki, misrepresentations and misunderstandings, objective 2 is designed to address situations in which confidence is at risk and to recognise that that is an important issue when promoting financial stability that goes over and beyond the stability of the financial systems of the United Kingdom, or could do in certain circumstances.

Lord Mackay of Clashfern: I am sorry to be on my feet again, but I wonder whether confidence in the financial systems would also be important. Or is it only confidence in the banking system that is important—that is, that part of the financial system which is the banking system?

Lord Myners: This legislation is designed to handle issues relating to the banking system.

Baroness Noakes: Before I decide what to do with my amendment, I have a couple of points to put to the Minister. To help the Committee he gave an example of how the objectives would be balanced. He said the draft code would cover that. He then gave the example of the investment of public funds as being something that would be taken into account. Unfortunately I did not bring my copy of the draft code into the Chamber with me. Is that example in the draft code?
	My second question is of a similar nature and related to the question that my noble friend Lord Blackwell asked on property rights. It cannot be the case that property rights can simply be had regard to and disregarded lightly, because they are protected by the convention on human rights. Will the Minister explain again how those rights are balanced against other rights and say how those rights, which are important and protected by European law, are balanced against other matters? Will the code set out in detail how those things might be addressed in particular instances?

Lord Myners: I believe that the example I gave is drawn from the code, but the code is a long and complex document; I have a copy with me, but it would delay the Committee if I were to seek to find the quotation. If I do, I will ensure that that is drawn to the noble Baroness's attention. If it is not in the code, it strikes me as an example that should be—and of course the code is an evolving document.
	Noble Lords will appreciate that I do not have a legal background, but I place emphasis on the words "as appropriate" in Clause 4(9). The objectives are not listed in this section in any particular order. That is important, because circumstances will be different and they are to be balanced as appropriate in each case.
	There is a very clear message from the noble Baroness, Lady Noakes, with which I am entirely comfortable: that it is difficult to envisage a situation in which it would be appropriate to override convention rights within the Human Rights Act 1998. However, there are circumstances in which it would be appropriate to take them into consideration and others where they would simply not be relevant and therefore not appropriate.

Lord Higgins: I may have misheard the noble Lord. Did he say he had a copy of the code with him and, if so, can we have one as well?

Lord Myners: In fact, my officials have given me a copy of the Special Resolution Regime: Safeguards for Partial Property Transfers, not the code. I apologise.

Lord Eatwell: I should like to follow on from the point raised by the noble and learned Lord, Lord Mackay, regarding the objective of the stability of the UK's financial systems. Why were investment banks or bank holding companies not mentioned in Clause 2? Leaving aside bank holding companies, and looking more carefully at the clause with respect to investment banks, which we will consider later, I can see that this refers purely to an insolvency regime and not the special resolution regime, so I quite understand why they are not mentioned.
	Will my noble friend elaborate a little on the objective of financial systems? It is now clear to everybody that the collapse of Lehman Brothers and the willingness of the United States authorities to let it become insolvent was a major factor in enhancing the severity of the financial crisis in which we now find ourselves. Therefore, if we want to enhance the stability of the financial system, would it not be desirable for a special resolution regime to be applicable to an investment bank so that it could be kept going and we would not see the type of disaster that has resulted from the mistake that the American authorities now acknowledge they made?
	Will my noble friend confirm that it is not the intention of Her Majesty's Government to develop a special resolution regime for investment banks and that we will have this extended and valuable insolvency procedure which is to be introduced later but not the means of keeping an investment bank in operation?

Lord Myners: My noble friend Lord Eatwell raises the question of Lehman Brothers. If one looks back on what has happened over the past 18 months in the global banking system, there have been various phases. I think that the decision of the American authorities to allow Lehman to fail took us into the third and most challenging phase. There was serious further erosion of confidence as a result, and many in the United States of America now recognise that there were consequences which they do not welcome.
	We have proposed further amendments to deal with investment banks. We do not believe that an SRR-type regime is appropriate for an investment bank; nor do we believe that conventional insolvency procedures are appropriate. My noble friend referred to this matter on Second Reading, and I will reflect on what he says.
	My noble friend asked an earlier question about Clause 2, which provides for an interpretation of the term "bank" for the purposes of Part 1. The reason that no reference is made to investment banks is that the amendments that I laid yesterday with respect to investment banks, which relate to insolvency as I have said, will not be a part of the special resolution regime that is the subject matter of Part 1.
	My noble friend Lord Eatwell also asked why no reference is made at that point in the Bill to bank holding companies, which are the subject of another group of amendments which I have laid. The answer is that the application of the term "bank holding company" is dealt with in the new clauses in related amendments that I have laid. I shall therefore reflect on whether further reference in Clause 2 is necessary, but I am not minded at this stage to believe that it is.

Lord Barnett: I do not wish to raise Lehman Brothers because I recognise that the Minister was not responsible for the appalling mistake that was made in that case, but the question of investment banks is crucial. Clause 2(2)(c) states that "bank" does not include,
	"any other class of institution excluded by an order made by the Treasury".
	Does that not leave it wide open to the Treasury to decide on this matter? I do not necessarily have an objection to that, but I would like to know precisely what my noble friend understands to be the interpretation of "bank" under Clause 2(2)(c).

Lord Myners: My noble friend is correct. "Bank" does not include any other class of institution excluded by an order made by the Treasury. That will be a determination made by the Treasury.

Baroness Noakes: We have had an interesting and wide-ranging debate on the amendments. The Minister said that my Amendment 8, which would insert "all of", was not necessary in the context of Clause 4. Subject to reflection, I am minded to take that point. I am still a little concerned about the code of practice. Clause 5 states:
	"The code may, in particular, provide guidance on ... how to achieve the special resolution objectives".
	My Amendment 18 would insert,
	"how the special resolution objectives are to be balanced against each other".
	The examples that the Minister helpfully gave were about balancing the objectives against each other. I am not entirely convinced that the Act correctly reflects the intent in relation to the code of practice—the intent being something with which we agree; that is, that the code should reflect the balancing. I would like to take that aspect of it away and think about it further.
	My only other reflection on the debate is that I am still not sure that we are all completely wise about the relationship between Clause 4 and Clause 7. I beg leave to withdraw the amendment.
	Amendment 8 withdrawn.
	Amendment 9 not moved.
	Amendment 10
	 Moved by Baroness Noakes
	10: Clause 4, page 3, line 21, at end insert "which includes ensuring that that they have access to their deposits as rapidly as possible and that depositors and other customers have continuity of banking services"

Baroness Noakes: The amendment expands the definition of objective 3 in Clause 4 so that the protection of depositors is a widely drawn concept and extends beyond depositors accessing their deposits to the need of depositors and other customers to have continuity of banking services. It is a point which has been pressed strongly on us by the British Banking Association. It is supported by consumer groups and bodies representing small businesses. The draft code of practice recognises that one way of delivering depositor protection is to provide continuity of banking services, but the Government have not included continuity of banking services explicitly within the Bill. Indeed, a straightforward reading of Clause 4 would not lead a reader to believe that continuity of service had any part to play in the special resolution regime.
	Providing continuity of service is important at two levels. For individual customers affected by a bank failure, it becomes critically important to establish how they will receive their monthly salaries and meet their various direct debit commitments—for example, for rates and utilities. Customers also need to draw cash, as we are not yet in a cashless society. The impact assessment itself gave the statistics on the pervasiveness of banks in everyday life, with 90 per cent of wages and 98 per cent of benefits being paid into a bank or post office account, as well as at least 75 per cent with at least one direct debit.
	Objective 3 talks about the protection of depositors, but the deposit element of the banking relationship is often the least important element. The sum in the bank in many cases is not a passive investment but a vital part of the mechanism of household finances. I have referred to individuals, but the same is true for businesses, both large and small. Without access to banking facilities, individuals and businesses simply become non-functioning.
	The other point is that the confidence that banks' customers have in the banking system as a whole is linked to whether they can place their trust in the banking system working for them when they need it—which is almost all the time. When Bradford & Bingley was dismembered in the autumn, the one good thing that the Government achieved was the seamless transfer of banking services available to Bradford & Bingley customers to Abbey Santander. It may be that, when the Bill was drafted, the importance of continuity of service was not well articulated and therefore not reflected in the drafting, which led to its being drafted as if deposits alone were the important aspects. I hope that recent experience will have brought home how important this is and the fact that it needs to be reflected in the Bill.
	In addition to the benefits to all bank customers of seeking a solution which includes continuity of service, the Minister will be aware that there is a huge potential impact on the cost of action taken under this Bill if continuity of service is not achieved. The Financial Services Compensation Scheme is a critical component of this. We will not reach the clauses dealing with the FSCS for some time, but the banking industry backed up by an independent study by Ernst and Young estimated that the FSA's consultation document on faster payout via the FSCS will cost around £1 billion over the first five years, whether or not faster payout was ever required.
	Under the FSCS, faster payout would not be important if continuity of banking services were embedded as one of the objectives of the special resolution regime. There is a serous policy issue about whether one of the tripartite authorities—namely, the FSA—should be pursuing a cost-laden approach to the FSCS, which could be largely settled by making continuity of banking services an SRR objective. I know that the Government appreciate the need for the continuity of banking services and the differences between us may not be that great. In that light, I am hopeful that the Minister will be able either to accept this amendment or agree to produce the Government's own amendment at a later stage.

Lord Newby: This seems an eminently sensible amendment. For the reasons set out by the noble Baroness, we support it. I have nothing to add to the arguments she has made in its favour.

Lord Northbrook: I support the amendment proposed by my noble friend Lady Noakes. I point out that the impact assessment on the Bill subscribed total costs of only £2.2 million to £4.5 million to the banking reform proposals included in the Bill. That seems a very low figure.

Lord Oakeshott of Seagrove Bay: The noble Baroness makes a good point. She gave the example of utility bills being paid. When we think about what has been happening and the problems of the banks effectively in many cases cutting off supplies to business—I think that is a fair way to put it—I think the parallel is apposite. It is as if businesses were having their gas, water or electricity supply cut off without, in many cases, being able to go to an alternative supplier. Continuity of service is a very important point and I strongly support the amendment.

Baroness Turner of Camden: I have been listening to this debate as a non-expert, but as a very concerned member of the depositing public. Continuity of service is a matter of grave concern to many of us. I really do not know what I would do without my bank. Therefore, the whole idea of continuity is basic to the whole idea of security. I hope that my noble friend will consider this amendment with a view to incorporating it or something like it in the Bill.

Lord Whitty: I add my voice to the growing swell of support for the amendment. In doing so, I declare my interest as the chair of Consumer Focus. The amendment addresses exactly the kind of concerns that the ordinary consumer of banking services is worried about and which affect the viability of many small businesses. I ask my noble friend to look at this and to either accept it or come up with a similar amendment.

Lord Stewartby: I suggest to the noble Lord that he is going to have to accept this provision sooner or later; it would be very good if it were sooner.

Lord Myners: I thank noble Lords for their advice. I do not think that there is a great difference in opinion between us. It is really a matter of how the objective is delivered. I am not entirely clear whether the noble Baroness, Lady Noakes, envisaged that continuity of banking services would have as broad a definition as the noble Lord, Lord Oakeshott, appears to be suggesting, where it might be construed that continuity of service extends to a commitment to make credit available. I take the definition as being more relevant to the observation made by my noble friend, and as enlightened by the reference of the noble Baroness, Lady Noakes, to Bradford & Bingley—namely, the continued availability of the function of the banking system in respect of access to deposits and means of transferring money and settling obligations and transactions.
	I will take into account the comments on this point that have come from all sides of the Chamber. However, I would like to set out the factors that I also will be weighing in the consideration, ones that will lead to my inviting the noble Baroness, Lady Noakes, to withdraw the amendment.
	I do not believe that the amendment is necessary as both the second and third objectives, as set out in the Bill, implicitly include the concepts of access to deposits and ensuring continuity of banking services. If there is any doubt regarding this, the draft code of practice, which was published in November 2008 under the title Special Resolution Regime: Safeguards for Partial Property Transfers, makes this explicitly clear. The term,
	"public confidence in the stability of the banking systems",
	refers to the crucial role that public confidence has in maintaining the stable and efficient operation of financial services and markets. The confidence of the general public is of particular significance in maintaining stability in a banking system based on a fractional reserve model, whereby banks' deposit liabilities exceed the liquid assets they hold at any one time. The Committee knows that confidence is critical to banking. The code goes on to state that public confidence has a number of dimensions. For example, it refers to the expectation that, first, deposits will be repaid in accordance with their terms; secondly, normal banking services will be continuously available; thirdly, problems, or perceived problems—and this takes me back to the point I was making earlier in response to an observation from the noble and learned Lord, Lord Mackay—in one bank or building society will not extend to other banks; and fourthly, if a bank or building society fails, systems exist to protect the interests of depositors.
	There is further discussion within the document, in the sections of the code relating to the objective of depositor protection—of the need for continuity of service and rapid access to funds—to which I refer Members of the Committee. Copies are available on the Treasury website or from the Bill team, which is standing by to help Members of the Committee with any inquiries they might have.
	Returning to the matter in hand, an explanation of the meaning of terms referred to in the SRR better fits in the code of practice than in the Bill. I therefore invite the noble Baroness to withdraw the amendment but, in so doing, I assure her that I will take it away and give the matter further consideration.

Baroness Noakes: I thank the Minister for that reply, and all other Members of the Committee who have taken part in this relatively short debate. It may have been short, but the importance of the issue has been well set out. I know that all the Minister's speaking notes are designed to say "I ask the noble Baroness to withdraw her amendment", and am pleased to see that the Minister has managed to modify that in responding to this one.
	The Minister referred to the explanations in the code, to which I referred in my introduction. I was aware that the issues were dealt with in the code, which is why I said that we were not far from the Government on this. However, the code has no legal force. It is nice to have, but does not have the same force as something in the Bill. Some things have to be in the Bill.
	There is an issue of what we mean by "banking services". The Minister referred to them in terms of having access to one's assets. Of course, a conventional banking relationship might have an overdraft. It is just as important to an individual that an overdraft within an agreed limit is not immediately disturbed, because that is just as disturbing to household finances as the removal of a positive balance. The same is true for small businesses; I do not know where you draw the line before getting up to large businesses with large lines of credit and so on. The issue is not just about individuals and positive balances. The examples that the Minister read out from the code were about positive balances, and we must think about this in a broader sense.
	I heard the Minister say that he would take this away and think about it. I genuinely hope that he will, because it is important to have this issue properly reflected in the Bill in words that everybody feels comfortable with. It is also important to get my earlier point, on whether the FSCS might be overengineered in the absence of a continuity of service objective, positively recorded early in the Bill. I have great pleasure in withdrawing the amendment for today, but we will return to this issue one way or another.
	Amendment 10 withdrawn.
	Amendment 11
	 Moved by Lord Newby
	11: Clause 4, page 3, line 21, at end insert—
	"( ) Objective 3A is to protect and safeguard the value of the enterprise."

Lord Newby: The amendment would add a further objective to be taken into account when contemplating using the special resolution regime: to protect and safeguard the value of the enterprise. This would in no way undermine or reduce the significance of the objectives already in the Bill, but it is important that we do not lose sight of those other stakeholders affected when the special resolution regime is brought to bear: the shareholders and the creditors.
	We will come to the issue of creditors on Amendment 13 tabled by the noble Baroness, Lady Noakes, but my concern with this amendment is for the banks' shareholders. Of everybody involved in this saga, it is, in a way, easy to have little sympathy for the shareholders. One is necessarily worried about the overall banking system, the depositors and their ability to continue their ordinary day-to-day activities, as we have just discussed—it is crucial that the banks continue in operation—but the position of the shareholders is also important. In considering this, it is important to think about who the shareholders are. In much popular discussion of shareholders there is a view that they are fat cats who have nothing better to do than speculate left, right and centre. However, as we know, shareholders, not least in banks, and very often pension funds, are individuals who see a low-risk investment in a bank—as they see it—as part of their individual pension pot. Therefore, if you look at in those terms, it is very much in the public interest as well as that of the individuals concerned that the bank's assets are maintained as far as possible.
	It may seem a bit perverse to talk about preserving the value of a bank which by definition is in difficulties and without this special resolution procedure is likely to go bust anyway. That is the only basis on which the special resolution regime is brought into action in the first place. However, the extent to which there is a residual value in the bank at the point when it goes into the special resolution regime can vary dramatically depending on the point at which action is taken by the authorities to put it in the special resolution regime. The obvious example is Northern Rock. If the Bank had facilitated the transfer of Northern Rock to Lloyds TSB in late August, early September 2007, there would have been a residual value for the shareholders. Now there is none. We are not talking about a theoretical issue here; it is a matter of practical significance. Including this amendment in the Bill would put pressure on the authorities to move quickly when they fear that the SRR may be needed in order to protect these assets. At the moment, the authorities want to act before the bank goes bust and before the queues start, but there is no particular pressure on them to move quickly and to have any regard at all to shareholder interests. That is the purpose of the amendment. I hope very much that the Minister will feel able to accept it.

Lord Higgins: Thinking back to the Northern Rock episode, I believe there was some problem at the time for the Governor of the Bank of England with regard to European legislation. It turned out that he was prevented from doing what he would like to have done by the way in which the implementation of that European legislation was carried through this House rather than the form in which it originated in Europe. That brings me to a point which is worth making and was made by the noble Lord, Lord Newby, a moment ago. To some extent it is related to the whole issue of property rights, which is picked up in objective 5. Clause 4(8) states:
	"Objective 5 is to avoid interfering with property rights in contravention of a Convention right (within the meaning of the Human Rights Act 1998)".
	But, surprisingly, Clause 4(9) states:
	"The order in which the objectives are listed in this section is not significant; they are to be balanced as appropriate in each case".
	Am I wrong in thinking that it is not possible for the provisions of the Human Rights Act, and in particular the European Convention which it reflects, to be balanced against these other objectives, and that the provisions of the Human Rights Act and the European Convention, which is an international convention, would be bound to prevail in any case?

Lord Howard of Rising: Before speaking to this amendment I must declare an interest in both Bradford & Bingley and Northern Rock. As an investor my natural instinct is to encourage the protection of enterprise value. I have much sympathy with the amendment and recognise that it is important that the overall value of an enterprise, including the value of shareholders' equity, expressed so ably by the noble Lord, Lord Newby, is legitimate, should be recognised as such and should not be ignored. I urge caution: that the pursuit of this legitimate objective does not result in taxpayers' money being used to shore up or create value for equity shareholders which is not deserved. Shareholders take a risk and get the rewards associated with that risk. In the same way, they must take any losses.
	Another caveat to enterprise value, if it ends up being included in the Bill, is that without a clear definition of what precisely is meant by the expression, there is always the possibility that lawyers might find different forms of enterprise value for which compensation could be looked for from the taxpayer. If the Minister accepts the amendment, I urge him to include a suitable definition of "enterprise value".
	In summary, these Benches support the amendment. However, I hope that the comments which have been made will be considered when looking at it.

Lord Myners: I await with trepidation to receive Hansard to discover how inadequately I answered the question of the noble Lord, Lord Lamont. However, I am much more confident that I can correctly answer the question of the noble Lord, Lord Higgins; namely, that we cannot undermine our legal commitments and obligations under the relevant directive.
	I am grateful to the noble Lord, Lord Howard of Rising, for asking about a definition. If I was challenged to define "temporary", I am certainly even more challenged to define "enterprise value". As it is customarily used in business and finance, the enterprise value of a company usually comprises a number of elements, including the market capitalisation of the equity of the institution; that is, the market value of the shares in issue, and the market value of debt financing and other liabilities. This concept is much easier to apply to a non-financial institution in which the vast majority of the enterprise value lies in debt instruments rather than equity. It is extraordinarily difficult to interpret this concept of enterprise value as customarily used in business to give effect to the amendment proposed by the noble Lord, Lord Newby. As he took the opportunity to digress a little to talk about the plight of bank shareholders, I hope that I might do likewise. Certainly from my perspective that is sometimes more appealing than reading the notes prepared for me telling me that I should reject the noble Baroness's amendments, from which I am occasionally willing to deviate.
	The noble Lord, Lord Newby, said that he sometimes had difficulty expressing sympathy for shareholders of failed banks. However, he was also absolutely right to point out that those shareholders are in most cases institutional investors and that the funds are used to provide our pensions, protection and insurance and to meet future needs. The media may well have an image of shareholders as fat cats, speculators and hedge funds but that simply is not the case. No doubt we shall discuss Equitable Life later this week. I am reminded that Lord Penrose, who produced a report on it, said that the members of that society were the authors of their own misfortune.
	I say to the noble Lord, Lord Newby, that I think there is a parallel to some extent here, in that there is a challenge to the owners of banks as to whether they were appropriately engaged in asking questions about what the banks were doing, why they were increasing their leverage and why they were accepting progressively lower returns on assets. Did they have a good appreciation of the risks associated with the products that they were creating and purchasing? Did they have a good grasp of the overall impact of the remuneration arrangements that they had set in place and the possibility for those remuneration arrangements to have dysfunctional consequences as far as the shareholders were concerned? While I have sympathy for shareholders in respect of what has happened, there are some important questions to be asked about how institutions conduct their own engagement with companies and how they relate to boards of directors.
	I do not believe that a core objective of the SRR should be to protect enterprise value in terms of measuring the value of a firm. When a failing bank enters the SRR, the stabilisation options in the Bill are deployed because the authorities believe that they are necessary in the public interest. At this point, the wider public interest of financial stability, depositors' interests and the protection of funds may well outweigh the commercial interest of the bank. This need to balance the public interest in exercise of the SRR tools against the interest of the bank itself and its creditors is implicit in objective 5—to avoid interfering with property rights in contravention of the convention rights. This objective ensures that any interference with the rights of the company and its creditors must be in the public interest and that the interference must be proportionate.
	Therefore, I reassure noble Lords that a number of specific features of the SRR will operate to safeguard and protect the value of the failing bank. The Bill is designed so that the stabilisation options of the SRR can be applied before the insolvency threshold has been reached. This has been specifically designed to allow the authorities, in pursuing a successful resolution of a failing bank, to preserve residual value that may remain in the business.
	I draw the attention of noble Lords to Clause 58, to which amendments have been tabled. The clause introduces the bank resolution fund. This fund, which is compulsory for a bridge bank but optional when taking a bank into temporary public ownership, is designed to ensure that the proceeds of any resolution, minus deductions necessary adequately to safeguard public funds, whether actually applied or put at contingent risk, must flow back to the failing bank.
	If the Bank of England or the Treasury put in place a bank resolution fund, the resolution fund order may place a duty on the authorities to maximise the proceeds available for distribution subject to meeting the special resolution and bridge bank governance objectives. This mechanism should also help to achieve the result that the noble Lord, Lord Newby, is looking for in the amendments. I ask him to consider withdrawing the amendment.

Lord Higgins: I shall intervene for a moment, because I am not entirely happy with the noble Lord's answer. On the front page of the Bill, he states:
	"In my view the provisions of the Banking Bill are compatible with the Convention rights"—
	that is, the rights under the human rights convention. Accordingly, Clause 4(8) states that one of the objectives is,
	"to avoid interfering with property rights in contravention of a Convention right".
	Clause 4(9) states that the objectives "are to be balanced". I cannot quite see how you would balance something which, in terms of the noble Lord's provision at the front of the Bill, appears to be absolute.

Lord Myners: I suggest to the noble Lord, Lord Higgins, that in circumstances where objective 5 is relevant, it clearly cannot by definition be subordinated to the other objectives.

Lord Newby: I am grateful to the noble Lord for giving me such a full reply. This is probably not the time to have a full debate on how shareholders exercise their power, but I think that the noble Lord would agree that the theory of shareholder power is very far apart compared to the practice. Shareholders do not necessarily in reality have the information that they need, or the ability to question management on an ongoing basis, in a way that would allow them to exercise judgment as he would wish. In the case of Northern Rock, for example, it would appear that not just shareholders but the FSA went for months without realising what was going on. To expect an individual shareholder to have such a close knowledge of what is happening to a body in which they have invested, and then to be able to exercise any authority over it, is a pipe dream rather than reality.
	As regards the definition of "enterprise value" and the complexities of that, I do not think that matters very much, because you are not seeking to value the enterprise at any point; all that you are seeking to do is to say that delay could cause the value of this enterprise, however it is measured, to decline, and that is simply not in anyone's interest. There may be issues there, and there may be a different definition that is preferable, but that is not an overriding argument against the proposal. I also heard the comments made by the noble Lord, Lord Howard, and I will read them carefully, along with the Minister's reply. In the mean time, I beg leave to withdraw the amendment.
	Amendment 11 withdrawn.
	Amendment 12
	 Moved by Lord Howard of Rising
	12: Clause 4, page 3, line 22, at end insert "and to ensure that the expenditure of any public or private money is done in an economcally efficient manner"

Lord Howard of Rising: Amendment 12 is a straightforward amendment to ensure that expenditure of any public or private money is done economically and efficiently when implementing the special resolution regime.
	It is difficult to imagine that there could be any objection to including the amendment. In another place, the Minister, while agreeing with the intention of the amendment, thought that the general mechanisms for monitoring government expenditure, including the work done by the National Audit Office, made it unnecessary to make economy and efficiency an objective of the special resolution regime. It would be helpful if the Minister could explain to the House how the National Audit Office would be effective in this role, as I believe that I am correct in saying that the main audit of the Bank of England is carried out by an independent firm of accountants.
	Examining what has happened after the event and saying that it could have been done better is not the same as it being a requirement in law that spending money under the special resolution regime should be done economically and efficiently. If there had been a resignation each time the National Audit Office had made a criticism of the Government, the Government would have run out of Ministers a long time ago. Very wide powers are being sought in the Bill, with a great deal of trust in how the powers are to be used. It could not be unreasonable to ask that there should be a requirement to use the powers in an economically efficient manner. I beg to move.

Lord Myners: Amendment 12 proposes that we include in the SRR objectives that expenditure of public and private funds is done in an economically efficient manner. Of course, I absolutely agree with the intention behind the amendment, but again I am not convinced by the argument to place this as an objective of the special resolution regime.
	First, I should say, as the noble Lord, Lord Howard of Rising, has anticipated, that there are adequate general mechanisms to monitor and provide oversight of the use of private and public funds by the Government and other public bodies. In addition to the value-for-money and propriety analysis, the Government will, before providing financial assistance, undertake external mechanisms to ensure that assistance is provided in an appropriate manner—for example, through the excellent work of the National Audit Office.
	On private funds, if the noble Lord was referring to the funds of the FSCS, we have put in place a number of provisions to ensure that when it is called upon to fund the special resolution regime, under Clause 168, these funds are used in an appropriate manner. I refer in particular to the requirement that any resolution cost to which the FSCS must contribute be independently verified, and the core principle that the FSCS cannot contribute more than it would have had to pay out to insured depositors, if the bank had entered insolvency.
	Given that these safeguards are in place I hope that the noble Lord can consider withdrawing the amendment.

Lord Howard of Rising: I thank the Minister for his remarks, but I must point out that monitoring something is not the same as requiring something to be done, or instructing for it to be done. The request that has been made is perfectly reasonable, and I am rather disappointed that the noble Lord has reacted so negatively. However, I beg leave to withdraw the amendment.
	Amendment 12 withdrawn.
	Amendment 13
	 Moved by Lord Howard of Rising
	13: Clause 4, page 3, line 24, at end insert—
	"( ) Objective 6 is to protect the interest of creditors."

Lord Howard of Rising: I shall speak also to Amendment 16. The objective of these amendments is to protect the interests of creditors: Amendment 13 adds an objective to ensure that creditors' interests are protected, and Amendment 16 would include this in the code of practice. That is important because creditors cover a wide range from depositors not covered by the FSCS to trade creditors. There will be a number of competing claims on the assets of an enterprise about which there is doubt. It is only right that if powers under the special resolution regime are used, the Government should recognise that there should be fair treatment for everyone. If a bank is in a position whereby it comes under the special resolution regime, there is a good chance that ordinary trade creditors—some of which might be small enterprises that could be sunk by a bad debt from a supposedly sound organisation—might be owed money. In the powers available under the Bill it is important that the rights of all creditors are clearly stated.
	There is provision in Clause 60 to ensure that pre-transfer creditors do not receive less favourable treatment than they would have received had the institution entered insolvency immediately before transfer. However, that is restricted to partial property transfers. If this principle of fairness is accepted, as it has been in Clause 60, I am sure that the Government would agree that that should be extended further to ensure that the interests of all creditors are treated equally and that that requirement for fairness should be included in the code of practice as set out in Amendment 16. I beg to move.

Lord Myners: Some of our earlier discussions, in particular the probing by the noble Lord, Lord Higgins, on objective 5, have been helpful in illuminating the issues raised by the noble Lord, Lord Howard. Amendment 13 proposes that protection of creditors should be a separate SRR objective, while Amendment 16 states that the code should provide further information on how the interests of creditors will be taken into account when operating the SRR. Let me set out why these amendments, laudable as they are, are unnecessary.
	First, objective 5, already drafted into Clause 4, is important in this respect. The term in objective 5 about the need to
	"avoid interfering with property rights in contravention of a Convention right"
	refers to the rights of property holders who might be affected by the use of the SRR. That can include the bank or building society itself, its shareholders or creditors or other third parties. Such persons may hold property in the failing bank or building society or have a right of control over such property, or both. The inclusion of this objective acknowledges the importance of acting proportionately when exercising these powers. The primary convention right at issue is Article 1 of Protocol 1 to the convention, the right to property. Other convention rights—including Article 6, the right to fair trial—may also be relevant. Therefore, objective 5 operates to ensure that any interference with the rights of creditors must be in the public interest and proportionate.
	Secondly, a number of specific features of the SRR operate to protect non-depositor creditors, such as the protection that we propose for set-off and netting arrangements in the case of a partial transfer—a matter which I suspect we will, quite properly, discuss at length in Committee. I also draw noble Lords' attention to the compensation provisions that we have provided and, in particular, to the possibility of compensation being payable to creditors under a third-party compensation order. As for partial transfers, there is the additional safeguard, reflected in Clause 60, of ensuring that no creditor remaining in the residual bank is left in a position in which they are worse off than in the event of a whole-bank insolvency.
	We certainly agree that the interests of creditors need to be taken into account when determining whether the SRR should be deployed and in exercising the stabilisation powers. I am therefore very comfortable with the sentiments driving the amendment proposed by the noble Lord, Lord Howard. However, we do not think that it is appropriate to provide expressly for the protection of creditors, unlike the protection of depositors, to be made a separate objective.
	Creditors—to a much greater extent than retail depositors—can take a number of steps to protect themselves in the event of counterparty failure, including taking security and adopting set-off or netting arrangements. Where creditors stand unsecured, they do so in the knowledge that this is the case and having secured a suitable rate of return on the terms of their liability. None of this is the case with depositors. The Government have been clear that the SRR measures are focused on protecting the depositor class both as an end in itself and because of the important role of depositor protection in maintaining financial stability and confidence in it.
	The authorities have therefore developed the SRR tools accordingly. A prime example is the new bank insolvency procedure tool which supports fast payout for depositors. A different regime would need to be designed if the protection of creditors, in and of themselves, was a primary objective for the exercise of the SRR powers. Protecting creditors should therefore not be a reason in itself for pursuing the SRR tools. On that basis, I do not agree that the protection of creditors should be elevated to be an objective of the SRR.
	Amendment 16 is intended to ensure that the code of practice includes text on how the interests of creditors will be taken into account during the exercise of the SRR tools. Again, I do not believe that the amendment is necessary for pretty much the same reasons as I have just set out—namely, that the Bill sets out how the interests of creditors are to be treated and protected. The code of practice provides further information on the interests of creditors by providing further information on objective 5 of the SRR, which concerns avoiding interference with property rights. Given that, I do not believe that there is a need for a separate section in the code on this matter, and therefore I ask the noble Lord, Lord Howard of Rising, to withdraw the amendment.

Baroness Ford: Can the Minister explain how bondholders are to be treated in the regime that we are discussing?

Lord Myners: Bondholders, where they exist, will be treated according to their ranking in the liability structure of the company. If a surplus is available at the end of the resolution process, it will be distributed in accordance with the claims, and that will reflect the seniority, or otherwise, of different classes of bondholder. One consequence that I can see arising as a result of the banking crisis is that banks will move to much simpler capital structures and will make much less use of innovative instruments than has been the case in the past. Therefore, should we ever have to face a similar situation in the envisageable future, some of the problems may not be quite so onerous.

Lord Howard of Rising: Again, I thank the Minister for his comments. It is disappointing that he should so often express sympathy and agreement with the amendments to which I speak but so rarely be prepared to accept anything that is said. Having produced a number of good reasons why there may be protection, I fail to see why the Minister will not accept the amendment and expressly include the provision for creditors.
	The Minister made the comment that unsecured creditors take a risk. I accept that but, as the noble Lord, Lord Newby, pointed out earlier, it is not always reasonable to expect everyone to understand complex bank balance sheets. Indeed, in answering a question about bonds just now, the Minister said that he thinks that these balance sheets will become simpler in future. However, generally speaking, it is the extremely complex ones that get into trouble and those are the ones where creditors need to be protected. Having said that, I beg leave to withdraw the amendment.
	Amendment 13 withdrawn.
	Amendment 14
	 Moved by Lord Howard of Rising
	14: Clause 4, page 3, line 24, at end insert—
	"( ) Objective 6 is to avoid the distortion of competition."

Lord Howard of Rising: Amendment 14 seeks to ensure that when the special resolution regime powers are used, they are not allowed to create an unfair advantage for the institution over which the powers have been taken. Given the powers under the special resolution regime and the huge advantage of government backing, this would be all too easy.
	It would obviously be grossly unfair if a bank were to use funds provided by the taxpayer to take competitive advantage over other financial institutions. There will always be a temptation to do this; it is the natural commercial instinct of bankers to make profits. Added to that is the temptation to help the Government by the early repayment of government finance, by creating value to facilitate a sale of government shares or merely by creating value so that the Government appear in a good light and are not seen to have taken an unreasonable action. Therefore, it is only sensible that there should be some built-in restraint. Inevitably, there will be an advantage to an institution owned by the Government in taking deposits as they will become a near relation of sovereign debt. That cannot be got away from but, in so far as possible, distortion of competition should be avoided and it is only right that that should appear in the legislation. I beg to move.

Lord Borrie: I hope that the Minister will give more support to this amendment from the noble Lord, Lord Howard, than he did to the questions that I put to him a few weeks ago before the Christmas Recess when he made a Statement about the takeover of HBOS by Lloyds TSB. Your Lordships will recall that at that time not only did the Government override the expressed views of the Office of Fair Trading on the matter of competition, with the number of leading banks in this country in effect being reduced from five to four, but they introduced—indeed, they had to introduce in order to deal with the matter—a special statutory instrument to which, in the circumstances of financial instability that the Government were properly drawing to our attention, inevitably we had to agree.
	At this point, I should say that I did not disagree with that final decision, but what is being asked in the reasonable amendment now before the Committee is that one of the objectives for the special resolution regime should specifically be the attempt to avoid a distortion, loss or restriction of competition. Therefore, I hope that in the longer term, which is what the Bill is concerned with, the avoidance of distortion of competition will be regarded as one of the objectives. It does not mean that that objective will always prevail but at least it will be taken firmly into account and will be required to be taken into account in the different circumstances in the future, about which we can only guess at the moment.

Lord Newby: We, too, have some sympathy with the amendment for the reasons that have been given. As we move forward beyond the Bill, one question to which we will want to return is how greater competition within the banking sector can be introduced. One way would be to develop some aspects of the system that are currently relatively undeveloped, not least in respect of banks at the bottom end—credit unions and community banks—which are being considered in a number of places. In this context, we will be fascinated to see how the noble Lord, Lord Hanningfield, progresses with the Bank of Essex, which is an interesting innovation. Going forward, I think that there is scope for more local banks and regional banks, and those will provide a way of reintroducing a greater degree of competition than we will be left with as a result of the events of the past few months.

Lord Myners: In Amendment 14 the noble Lord, Lord Howard of Rising, raises the important topic of competition. As he explained, the intention behind the amendment is to guard against competition distortions when a bridge bank is created or a bank is taken into temporary public ownership. I reassure him that we have put in place measures to meet this concern. I am a strong believer in having a competitive banking system that delivers value to customers. I believe that the points made by the noble Lord, Lord Newby, about the current shape of our banking industry are worthy of debate and discussion. I have previously expressed in this House my support for the concept of mutuality and my disappointment that we have seen so many mutual institutions in the financial sector—building societies and insurance companies—disappear. That is a matter of some regret, although those decisions were correctly and properly taken by the members of those institutions. The banking sector in this country is now much more concentrated, to which my noble friend Lord Borrie drew attention in the context of the creation of the enlarged Lloyds banking group. From where can I take some comfort that this amendment, laudable in its objective, is not necessary?
	The code of practice includes measures regarding the running of a bridge bank or a bank in temporary public ownership. It includes guidance on running the bank on a "conservative" basis, to use the word contained in the draft code. Further, both a bridge bank and a bank in temporary public ownership will continue to be regulated by the FSA in the same manner as any other financial service provider. There will be no special privileges or advantages under the regulation. The Office of Fair Trading will continue to keep the relevant markets under review to protect the interests of UK consumers and the British economy. I reassure noble Lords that firms in receipt of financial assistance will still be subject to the provisions of competition law with the competition authorities continuing to have the power to investigate breaches.
	As I said, the Office of Fair Trading will continue to keep the relevant markets under review to protect the interests of UK consumers and the British economy. Additional restrictions may also be imposed on those in receipt of financial assistance to comply with the rules on the provision of state aid. I hope that those points address the concerns raised by the noble Lord, Lord Howard of Rising, and I urge him to consider withdrawing his amendment in the light of the assurance that these banks will be exposed to the same rigorous competition laws as we regard appropriate for banks that do not find themselves within the special regulatory regime. Strong competition between banks is necessary regardless of whether the bank is in receipt of some form of support as contemplated by the Bill. I commit to be a fervent fan and promoter of effective competition in the banking system.

Lord Howard of Rising: I thank the noble Lords, Lord Borrie and Lord Newby, for their support on this amendment. I do not know how easy it is to accept the Minister's remarks about the competition authorities after recent experience has shown that, if it suits, they can all too easily be completely ignored. Lloyds/HBOS is a prime example. A bank that could not possibly have been put together under normal circumstances will have a market position that enables it, if it so chooses, to completely ignore some of the competition. There is little comfort in that as a protection. However, I am grateful to the Minister for his assurance— although it would be a pleasant surprise if his charming words of support, sympathy and encouragement could sometimes have a practical result. I beg leave to withdraw the amendment.
	Amendment 14 withdrawn.
	Debate on whether Clause 4 should stand part of the Bill.

Lord Barnett: This is a crucial clause and I should like to have a quick word with my noble friend on subsection (2)(c) referring to "the bank administration procedure", which is then referred to in Clause 5(1)(c) dealing with the code of practice.
	The code of practice is inevitably a draft as we cannot have the full code until the Bill is enacted, but I remain unclear about the Chancellor's view, as expressed by my noble friend and others, on an arm's-length procedure in the management of the banks. There are so many conflicts between the arm's-length procedure and the way in which the banks are supposed to be run. Even with government guarantees on banks, do they have the commercial right not to use the loan guarantee because they feel that lending to a particular customer or client is not a viable proposition? We are told in the draft code that the Treasury may take a hands-on role in managing the affairs of the bank, which is in direct contradiction to an arm's-length procedure. You cannot have an arm's-length procedure in running the bank if it is left to make its own commercial decisions and the Treasury then takes a hands-on role.
	I raised this issue with my noble friend on Second Reading and referred to what the Governor of the Bank of England said. This usually very cautious gentleman, Mervyn King, effectively implied that the banks could not be left to carry on as they would wish, which seems to say exactly that the Treasury will take a hands-on role. What do the Government have in mind on the bank administration procedure? They have asked for a response to the draft code to see whether anyone has any ideas about changing it. I would like to know exactly what the Government have in mind. Do they believe that if the banks do not lend, the Treasury will take a hands-on role, or will it be an arm's-length procedure?

Lord Forsyth of Drumlean: I apologise for not being here for the earlier part of the Committee. Someone conspired to have the Economic Affairs Committee sitting at the same time.
	I want to follow up from a slightly different angle the point made by the noble Lord. Clause 4(3) states:
	"For the purpose of this section the relevant authorities are—
	(a) the Treasury, (b) the FSA, and (c) the Bank of England".
	The Explanatory Notes on the background to the Bill state that a tripartite structure for overseeing the UK financial system has been created with distinct roles for the Treasury, the Bank of England and the Financial Services Authority. I do not want to digress into a Second Reading debate but it would be helpful before agreeing the clause if we could have an answer to the question of who is in charge.
	It is clear from recent events that no one has been in charge, and while the later clauses make provision for particular activities to be carried out by particular parties, and for consultation, it is not clear what will happen if consultation results in disagreement. Will the Minister give us some comfort? It is not the same point but it echoes the one made by the Minister's noble friend Lord Barnett. It is all very well saying that the relevant authorities consist of three groups but it would be nice to know who is in charge and who is driving the process.

Lord Myners: I plead not guilty to any part of the decision of the Economic Affairs Committee to meet at the same time as this Committee. I welcome the appearance of the noble Lord, Lord Forsyth of Drumlean, and respect his great knowledge of banking matters. We discussed these matters at some length earlier. It may not have been to everybody's satisfaction, but other noble Lords and I referred to the simple question of who is in charge. The answer is that people are in charge in their spheres of competence and expertise, and the tripartite committee brings together the Treasury's responsibility for public assets and the taxpayer, the FSA's responsibility for effective regulation and effective markets and the Bank of England's responsibility for overall financial stability. With all respect, I am not much inclined to go back into that debate at this stage. We covered it at some length. I suggest that the answer is that a person is in charge for the appropriate situation as contemplated in the Bill and as matched by his competence and expertise.

Lord Forsyth of Drumlean: I—

Lord Myners: I shall give way in a moment, but I shall continue while I still have fresh in my mind the question asked by my noble friend Lord Barnett. I was a little worried that he was going to ask technical questions about the code, not least because he has my copy of it, which would have given him a distinct advantage, had he wanted to. He did not go in that direction, and for that, I am grateful.
	We have got "arm's length", "hands on", "fingers in pies" and other metaphors. Let me try to help my noble friend. "Arm's length" applies to situations in which there is a significant public shareholding—government finance or government-owned shareholding— but we do not own the whole bank. We must have regard to the fact that these are publicly quoted institutions with external shareholders who expect them to be run in the way that a conventional successful business would be. I characterise arm's length in that situation as being an informed and engaged shareholder, an exemplar, reaching for and achieving the standards that the noble Lord, Lord Newby, referred to earlier. By contrast, "hands on" would apply immediately after a bank goes into a resolution regime and in a situation where it is wholly owned by the Government on behalf of the nation, either through a bridge bank arrangement or through temporary public ownership. I do not think those terms are inconsistent; they apply as circumstances determine. For the avoidance of doubt, it is not contemplated in the arm's-length situation that the Government would in any way direct banks to lend.
	My noble friend Lord Barnett asked about guarantees. The existing guarantees are largely in respect of liabilities to aid banks in their funding. It is for banks whether they seek guarantees to facilitate a deepening and broadening of their funding, and if they do so, they pay what we judge to be an appropriate rate of return to us for the risk that the Treasury is assuming in guaranteeing bank obligations. There are also certain arrangements in respect of guarantees of loans made by banks, particularly relating to small companies and to ECGD, which was covered in an earlier question. It is for the individual borrower and the bank to make what would be described as an arm's-length commercial decision. The bank will decide whether it regards an application from a small company to borrow under the small business loan guarantee arrangement to be good for its client and itself. It is does, it will enter into it, but it will not be compelled to do so.

Lord Eatwell: Can the Minister help me further on the arm's-length issue? He defined "arm's length" as involving a company being conventionally run in a successful manner. Such a company is usually run by its owners as represented on the board, and one would expect that if an owner held a majority of shares in the company, minority shareholders, who could enter or exit as they wished, would follow the general policy pursued by the majority shareholder. In the case of Royal Bank of Scotland, the Government are the majority shareholder by a substantial proportion. In this situation, why are they pretending that they are a sleeping partner and leaving commercial decisions to the whim of minority shareholders or the management who are not acting in the interests of the taxpayer?

Lord Myners: In the case of Royal Bank of Scotland, the Government are acting not as a sleeping shareholder but as a responsible shareholder. We are engaged with the board of that bank in strengthening its membership in the interests of all shareholders. It would be inappropriate for the Government to involve themselves in commercial, day-to-day banking decisions. The Government do not have the appropriate skills to do that. We find the right skills in the private sector, and we act in the interests of all shareholders. As a responsible lead shareholder, the Government ensure that the board is appropriately resourced, that the company's approach to risk is professional and consistent with protecting and enhancing the value for shareholders and that the company's control regimes and its approach to remuneration comply with the best standards. It would abusive of public shareholders for us to act as if we own 100 per cent of the company when we own only 56 per cent and we did not intend or wish to own that much if things had worked out differently. Ideally, we would not have wanted to have been put in this position at all.

Lord Eatwell: The Minister is right to suggest that a majority shareholder may not involve itself in the day-to-day running of a company—that is left to the board and the management—but would he agree that it is entirely appropriate for a majority shareholder to set the strategy for the company?

Lord Myners: We could debate this subject for hours. Indeed, lengthy books have been written on it. My limited experience in business is that it is not generally appropriate for shareholders to set the strategy, but it is appropriate for them to be engaged in challenging and approving it. That is what happens with public companies in the perfect world in which all shareholders appropriately engage, challenge and ask questions about business strategy. In that respect, Lloyds Banking Group and Royal Bank of Scotland should be no different from any other quoted company.

Lord Forsyth of Drumlean: I agree with the Minister about the importance of the arm's-length arrangement, but I shall press him, and I apologise if he has already covered this this afternoon. I am not trying to make difficulties for him, but I am genuinely concerned by this clause. It sets out five objectives and then states:
	"The order in which the objectives are listed in this section is not significant; they are to be balanced as appropriate in each case".
	However, there are three relevant authorities—the Treasury, the FSA and the Bank of England—that will have different perspectives in a complex situation. Somebody has to be able to take a decision and be in charge. Am I missing something here? Is the answer that it is the Government or the Treasury? If it is the Treasury—

Baroness Noakes: I hesitate to intervene on my noble friend, but we discussed a couple of groups of amendments earlier in Committee. It is a great pity that my noble friend was unable to be with us, but I wonder whether, in the interests of moving on in Committee, we might leave this to later in the Bill, when my noble friend has had a chance to read the extensive discussions that we had on those groups of amendments. If my noble friend wishes to continue, he is perfectly at liberty to, but I am conscious that most Members of the Committee have heard the arguments once this afternoon.

Lord Forsyth of Drumlean: They may have heard the arguments, but they may not have had a satisfactory explanation. It is a very simple question that I hope that the Minister could answer in one sentence.

Lord Myners: I thought that I had answered the question. The notion of who is in charge applies an altogether too simplistic approach to a complex and sophisticated interaction between three authorities, each of whom has different delegated responsibilities and expertise, but which come together and, as the Bill contemplates, have certain responsibilities which act in sequence in particular circumstances.

Lord Barnett: I am sorry to revert back to it, but on the question of the difference between an arm's-length and a hands-on role, I did not cite the rest of the draft code, which goes on to state that there be a business plan setting out how the directors intend to operate the bank and that that plan will include a commercial strategy. Given the arm's-length procedures, who will devise that commercial strategy: the Government, the Treasury, or who? Who is managing the bank?

Lord Myners: I am grateful to the noble Baroness, Lady Noakes, for her intervention; we could go on at some length here. The answer is, as we previously covered, and as in the ideal model to which the noble Lord, Lord Newby, referred—albeit one which we have both suggested has shortcomings at present—the development of the strategy is a matter for the board of directors, who will put it to the shareholders. In the case where we are but one shareholder—albeit the largest shareholder—it will be put to all shareholders. Royal Bank of Scotland's strategy will not be solely approved by the Government with complete disregard for other shareholders, with no engagement between the bank and other shareholders as would customarily be the case where the UK Government was not a large shareholder.
	In a case such as Northern Rock and Bradford & Bingley, where the bank is currently, temporarily, 100 per cent in public ownership, the process is rather more direct, but there is a very clear difference between those who are charged with developing and executing strategy—the board and the management—and those who are charged with approving strategy, the shareholders.

Lord Newby: The Minister kindly prays me in aid in the approach that the Government are adopting to RBS, but he is not totally fair to do so. There is a gap between being a detailed manager and, as a representative of everybody in this country and as the major shareholder, when people generally have a view about how they want their banks to behave, there being a strong moral pressure on the Government to exercise very close control of the bank's strategy through the directors appointed to its board. The country expects the Government to exercise that degree of control. As several noble Lords have said—although I do not presume to speak for the noble Lord, Lord Eatwell—we are trying to tease out the extent to which the Government accept that the country expects them, as a major shareholder, to exercise their power in that position to ensure that the bank is run to look after its customers and does not behave as it has in the past. If the bank is seen not to behave in that way, whatever the technicalities, the Government will be blamed for it.

Lord Myners: We will have to move on fairly soon, but this is a subject of considerable interest to me, so I am probably allowing myself to be drawn into it more willingly than my colleagues might suggest that I should be.
	There is a pressing need to strengthen the board of directors of a number of UK financial institutions. In cases where the Government have invested, UKFI, under the chairmanship of Sir Philip Hampton, the chairman of Sainsbury, and the leadership of its chief executive, John Kingman, is actively engaged to work with boards of directors to strengthen them through new appointments. I would not want those new appointments to be described or understood as being government appointments. I believe that the Liberal Democrat party and the Official Opposition support the concept of a unitary board in which the board is responsible to all shareholders. The concept of having directors who sit around the board table to speak for one shareholder to the disregard of others and who potentially take instruction from outside the boardroom or impart information from the boardroom back to one shareholder is alien to our core beliefs about corporate governance and correct practice.
	However, stronger boards we need. In the case of the Royal Bank of Scotland in particular, several directors, including the chairman, have indicated their intention to leave the board. Therefore, those boards, their major shareholders and UKFI need to work together to make first-class appointments. Finally, I add that those appointments should not necessarily be wholly and exclusively people with banking experience because, as the noble Lord, Lord Newby, said, and as was covered in an earlier debate in this House on the subject, we need to ensure that other issues such as technology and customer focus are appropriately represented around the board table.
	I now suggest that we move on.
	Clause 4 agreed.
	Clause 5: Code of practice
	Amendments 15 and 16 not moved.
	Amendment 17
	 Moved by Baroness Noakes
	17: Clause 5, page 3, line 33, at end insert—
	"( ) the meaning of the stability of the financial systems of the United Kingdom,"

Baroness Noakes: We managed to stretch the Clause 4 stand part debate to a considerable degree, but with the next amendment I think that we will stay fairly narrow. Amendment 17 would amend Clause 5, which requires the Treasury to issue a code of practice. My amendment adds the new requirement that the code should contain,
	"the meaning of the stability of the financial systems of the United Kingdom",
	which is the wording that we find in the special resolution objectives.
	When the meaning of financial stability was debated in another place, largely in connection with Part 7, to which we shall come at some point this year, it was recognised that the term can have several meanings—some narrow and some broad. That emerged from the evidence given to the Public Bill Committee in another place before it commenced its detailed consideration of the Bill. The Government argued in relation to both Part 7 and Clause 5 that a definition of financial stability should not appear in the Bill. In the case of Clause 5, they say that it should be in the code. We do not have a problem with that in principle, because the draft code indeed contains a definition of financial stability; we welcome that. We are concerned that that crucial aspect of the detail underpinning the special resolution objectives as set out in Clause 4 should be a positive requirement of the code.
	Clause 5(2) sets out quite a lot of process for what should be in the code but not enough meat. My amendment adds a little flesh to the bones of Clause 5. I suspect that we are not far from the Government on this point, because they have included a definition of financial stability in the draft code. The problem is that the current draft may not last for all time. Indeed, it might not even make it to the final version. There is also the possibility that the code will be revised many times over time, and we want to ensure that whenever that occurs, given the importance of the phrase in the context of the special resolution objectives, the code always contains that definition. We agree with the Government that a definition is more flexible in a code than it is in legislation; but, that being the case, we believe that the code should be in legislation. I beg to move.

Lord Davies of Oldham: I am grateful for the constructive way in which the noble Baroness has presented her amendment. There is not a great deal of difference between the Government's approach to these issues and the one that she has identified, but we have reservations about the amendment, which would permit the code to include a section on the meaning of the stability of the financial systems of the UK.
	Our problem is quite straightforward. The draft code of practice expands on the term,
	"stability of the financial systems of the UK",
	by referring to,
	"the stable functioning of the systems and institutions (including payment and settlement infrastructure) supporting the efficient operation of financial services and markets for purposes including capital-raising, risk-transfer, and the facilitation of domestic and international commerce in addition to day-to-day banking".
	This is a useful elucidation of the term, and I accept that there could be other competing and useful definitions. However, we do not believe that we have in the draft code an exhaustive definition of financial stability. We do not think that we could have such a definition.
	The problem is how to define financial stability in such a way that it would obtain among all commentators and all those interested in the concept, and how to identify what acts might pose a threat to financial stability. After all, instability is the product of challenges to the system, and it is not easy for us to foresee these and to produce an exhaustive definition that pays full regard to that. Whether the financial system of the UK is stable or whether any particular act would threaten financial stability depends a great deal on the circumstances and is likely to vary as the operation of global financial markets change and as the British economy and its relationship to such global financial markets evolve. We have therefore included in the code of practice an elaboration of what financial stability means, and it will be used to guide the authorities in determining whether the specific conditions for the special resolution regime have been met, as set out in Clauses 8 and 9. However, this definition is not intended to be exhaustive and definitive. That is why we shy away from the noble Baroness's objective, although I recognise the value of what she proposes. We do not think that we should make such a definition mandatory in primary legislation.
	We hope that it will be recognised that the code of practice is likely to change over time. That is in the nature of codes of practice and why they have elements of flexibility. We are therefore resistant to an amendment that would require us to be quite definitive about a concept which we could not claim to be definitive about. I hope the noble Baroness will recognise that I am not hostile to her intent but am struggling with the fact that the Government do not think that they can fulfil the objective which she has indicated in her amendment. That is why I hope she will consider withdrawing it.

Lord Eatwell: I support the position which my noble friend on the Front Bench has taken. I argued at Second Reading that one of a series of important characteristics of the financial system is its continuous innovation and change. Indeed, the problems of instability that now affect the financial system have not come purely from the banks but from failures of other institutions and counterparties in elaborate chains of market relationships that go outwith the banking sector but that impose themselves on it. A precise definition of financial instability would fail to take account of the process of innovation that is characteristic of the system as a whole, so leaving the definition rather more open, as my noble friend has suggested, is the best course in these circumstances.

Viscount Eccles: I agree with the argument, but am I right that if it is a condition of doing something that you can show a serious threat—as set out in Clauses 8 and 9, as the Minister said—you are in fact leaving any discontented party to see whether they can resolve the matter in the courts?

Lord Davies of Oldham: There is always the question of the courts and the proper action of the authorities when it comes to action that may be taken under the Bill when it becomes an Act. At this stage, however, we cannot see how we can produce a definition in the code of practice that aids clarity in these terms. That is why we are not prepared to accept the amendment, although I accept what the noble Viscount, Lord Eccles, says; the basis on which the authorities interpret the law and act on it is always open to challenge. That must inevitably be so. The job of wise legislation is to make the issue as clear as possible so that such mishaps are minimised, if not ruled out, as far as humanly possible—a limitation, inevitably.

Baroness Noakes: The Minister does not really surprise me, because I know that Ministers like to resist all amendments that are proposed in Committee, but he has rather missed the point of the amendment. With respect, the noble Lord, Lord Eatwell, has also missed it. It was not to require a definition in statute that was therefore immutable except by further primary legislation, but to accept that the code of practice was the right place for such a definition in order to guide those who need to understand how the Bill will be interpreted at any point.
	The Minister has said that he cannot produce an exhaustive or a definitive meaning. I completely accept that, which is why I used "meaning" rather than "definition", although perhaps there are wording points here. A code of practice should be there to illuminate certain of the more difficult concepts that appear in the legislation. We have just spent quite a lot of time on Clause 4 and objective 1, which is,
	"to protect and enhance the stability of the financial systems of the United Kingdom".
	I am suggesting not that there should be a definition in Clause 4 but that the code in Clause 5 should explain what the Government mean at any point. That would take account of the issue of innovation over time, if indeed innovation will affect the meaning of "financial stability". The Government have accepted that they should put something in the draft code, in any event, on financial stability, but they resist saying that there should be something on financial stability.
	It seems that the Government are in a slightly inconsistent position and are trying to say, "We will tell you what we think about financial stability if we feel like it at the time, but nothing will ever require us to tell the world how we view financial stability at any time". I believe that the definition in the code is good and workable for today. Whether it is right for all time, I would not like to say. In any event, it would not bind any authority because a code of practice—although this is subject to the amendment proposed by the noble Lord, Lord Eatwell—is not a legally binding document. It is simply a document that gives guidance to market participants.
	I deeply regret the stance that the Minister has to take. He almost tempts me today to take the opinion of the House, but I shall go away and think about the wording of my amendment to see whether I can produce a better one that will pass those Treasury officials who like to resist everything. I beg leave to withdraw the amendment.
	Amendment 17 withdrawn.
	Amendment 18 not moved.
	Amendment 19
	 Moved by Baroness Noakes
	19: Clause 5, page 3, line 37, at end insert—
	"( ) how to determine whether Condition 1 in section 7 is met,"

Baroness Noakes: Amendment 19 places a further provision in the code of practice. It requires the code to set out how to determine whether condition 1 of Clause 7 is met. On the previous amendment, I gave the Government credit for including the material in the draft code, but I asked that they make such inclusion mandatory via the requirements of Clause 5. This amendment is different because the Government have not included any relevant material in the draft code other than to say in the most broad terms what the threshold conditions are. With this amendment, I am seeking a change of practice by the Government.
	As we alluded to earlier, Clause 7 contains the trigger provisions which activate the stabilisation powers of the Bank or the Treasury. Thus, Clause 7 is a sine qua non for the highly intrusive powers which can be confiscatory in effect. Clarity about the conditions set out in Clause 7 is important. The FSA has to be satisfied that the two conditions in Clause 7 are met. My amendment concerns only condition 1 as set out in Clause 7(2). It states:
	"Condition 1 is that the bank is failing, or is likely to fail, to satisfy the threshold conditions (within the meaning of section 41(1) of the Financial Services and Markets Act 2000 (permission to carry on regulated activities))".
	We were told that when the Treasury acted in relation to Bradford & Bingley it was because the FSA had determined that it was likely to fail the threshold conditions. Despite several attempts to elicit further information, there has been radio silence in what precise way it was that Bradford & Bingley failed the threshold conditions. The threshold conditions are the minimum conditions that are satisfied for a person to be given permission to carry on regulated activities. The conditions are not set out in the Financial Services and Markets Act but can be found in the FSA handbook. There is a wide variety of threshold conditions, all of which are important to the carrying on of regulated activities but not all of which seem to be sufficiently important to allow the triggering of the stabilisation powers. For example, there are threshold conditions about the adequacy of resources, which clearly would be hugely important in the context of the FSA's determination under Clause 7. Understanding how the FSA will approach the adequacy of resources for the purposes of Clause 7 is relevant to all banks and those who deal with banks. The threshold conditions also contain issues such as the location of head offices, the appointment of claims officers and matters such as this, which do not appear to be relevant to the issue of the stabilisation powers, however relevant they might be to regulation generally. Without some guidance as to the factors which might, individually or in combination, lead to a judgment under Clause 7 we are all in the dark.
	My amendment merely requires that the code of practice sets out how the FSA will reach its determination on condition 1. I can quite see that the FSA would need to keep some flexibility on how the threshold conditions will be interpreted in the context of Clause 7 and my amendment does not seek to tie the FSA down in every circumstance. Using a code of practice will not have that effect, unless of course the amendment tabled by the noble Lord, Lord Eatwell, is accepted by the Government; namely, to give the code of practice statutory effect. But assuming that the code does not tie the hands of the FSA entirely, which I understand to be the Government's intention of the code of practice, I believe that to give no guidance whatever in the code creates an undesirable uncertainty about the scope of the powers and how they would be used. That uncertainty will overhang the financial services industry and ultimately may deter businesses from operating in the UK. I beg to move.

Viscount Eccles: I support my noble friend Lady Noakes. The draft code of practice says that the FSA will be responsible for taking a decision that a bank or building society is failing or is likely to fail to meet its threshold conditions and that it is not reasonably likely that action will be taken which will enable it to meet those conditions. If we believe, as I think we do, that certainty is extremely valuable in the building of confidence, it surely is not helpful not to know how the FSA has come to a decision and the factors that it has taken into account. Schedule 6 to its Act of Parliament is very general in its language. It is not good to leave it in a situation where no one can understand why the FSA came to its decision, which was the case with Bradford & Bingley. As my noble friend said, we have tried to get an explanation of how the FSA made its decision on threshold conditions in relation to Bradford & Bingley, but we have not had an explanation. The lack of an explanation and accountability will certainly be very bad for the financial services industry in this country.

Lord Davies of Oldham: I shall ask the noble Baroness to withdraw her amendment because we think that this is a case of overegging the pudding. The threshold conditions are regulatory conditions under the Financial Services and Markets Act 2000. The provisions about the determination of whether they are met or not are included in the source material specified under that legislation. The responsible body is the FSA and the requirements are in the FSA handbook. I do not see what the inclusion of this in the code would do except to supplement that which is already abundantly clear and the role of the FSA.
	The noble Baroness mentioned that the FSA should preserve flexibility in changing times, which is necessary. Since December, it has been in consultation on updating the handbook, particularly as regards these issues and its role under Clause 7, to which the noble Viscount, Lord Eccles, also referred. We have a clear specification of the role of the FSA. With regard to the conditions, the issue is straightforward. The FSA has to take into account all the conditions. Its final judgment, to which it will give greater significance, will depend inevitably on the circumstances at the time. The noble Viscount, Lord Eccles, will also appreciate how difficult it is to be explicit and public about issues which relate crucially to confidence in the market.
	On Bradford & Bingley, the noble Viscount will know that the public interest could be solved only by making sure that depositors were safeguarded and that the bank was able to continue to function, albeit under very different auspices. That is a reflection of the nature of the crisis to which the FSA is responding—we all recognise that the FSA is taking action in circumstances where there has been market failure. Given that, I ask the noble Baroness to accept that if what she has identified is a weakness in the process and the role of the FSA in it—we discussed this earlier and my noble friend Lord Myners was able to be clear and explicit about the roles of the different authorities—here it could not be clearer that the first responsibility and decision rests with the FSA. We have a framework which makes clear the basis on which the FSA would act. Furthermore, it is responsible for its own handbook, which is where the process is identified.
	I hope that the noble Baroness will appreciate that her amendment would not add significantly to the necessary arrangements that form part of this Bill, but would produce an extra reference point when surely for the sake of clarity and certainty for all the actors, the more limited the number of reference points to which they should identify who acts and when, the better. For that reason, I hope that she will withdraw the amendment.

Baroness Noakes: I thank my noble friend Lord Eccles for his support. We on these Benches are not entirely sure that we agree that the noble Lord, Lord Myners, gave a clear and explicit description of the roles of the various authorities. Perhaps the Minister will take it from me that all is not clear so far as these Benches are concerned. However, that is not the purpose of these amendments. The Minister accuses me of overegging the pudding, but I have sought explicitly not to do that because, again, I have not asked for a statutorily binding description of how the threshold conditions would be used. If the Minister looks at the threshold conditions, he will find that they are general and extensive, and it is clear that not all of them would be relevant in the context of a decision under Clause 7.
	I thought that Amendment 19 was modest because it simply adds to the guidance that is to be issued under the code of practice in Clause 5. Guidance is just what it says: it gives the FSA flexibility to change under given circumstances, but also imposes on the authorities a requirement to make public how they expect to approach the decisions in Clause 7. The problem is that the FSA wants to play its card close to its chest and not reveal to the outside world how its powers might be used. We do not think that that is good administrative practice; rather, it would be better for the FSA to be more explicit about which aspects of the threshold conditions it was likely to prioritise or what tolerances it would be likely to look at. That is the spirit in which the code of practice has been drafted to date, but for some reason the FSA has managed to convince the Treasury that it should be exempted from disclosing anything about Clause 7.
	We ought to remember that, as the Minister said, this is about the FSA taking significant action. This is not a routine decision where the FSA says, "We don't think we're going to regulate you until you've improved some aspects of the threshold conditions"; rather, it says, "We are going to take everything away from you". The potential action under this clause is confiscatory in nature, and can trigger action that will run away from the bank's owners, creditors and managers. That is why it is incumbent on those holding these powers to be more explicit so that the organisations that might be targeted, and indeed the market as a whole, have a clear understanding of how these powers are to be used.
	For today, I will withdraw the amendment, but I should say to the Minister that I found his response entirely unsatisfactory.
	Amendment 19 withdrawn.
	Amendment 20
	 Moved by Lord Eatwell
	20: Clause 5, page 4, line 4, leave out subsection (4) and insert—
	"(4) The code shall be legally binding."

Lord Eatwell: As I understand it, it is the policy of Her Majesty's Government, as expressed by the Prime Minister following the G20 meetings in Washington, to encourage greater simplicity and less complexity in financial securities, especially in derivative instruments, and particularly to encourage the practice of netting. The failure of netting arrangements has been a major element in the spread of financial contagion from the collapse of Lehman Brothers.
	The regime we are discussing applies not just to a bank that fails but to one that is likely to fail. It therefore applies prior to formal insolvency procedures and the triggering of contractual insolvency conditions, and so we are looking at preconditions. If we are to have netting of obligations, the term "have regard to the code", as currently expressed in Clause 5(4), is entirely inadequate because it does not provide sufficient legal certainty for lawyers to provide the required so-called legally clean opinion to allow netting to take place. I have tabled this amendment asking for the code to be legally binding in order to investigate how the Government are dealing with this contradiction, because by providing a degree of legal uncertainty at the point at which the SRR might be introduced, they are negating their own objective of encouraging greater netting in financial services.
	I would be most grateful if the Minister could address this question in the context of providing legal certainty. Rather than the relevant authorities simply having regard to the code, they should be required to follow its terms. I beg to move.

Viscount Ullswater: I must advise the Committee that if this amendment is agreed to, I shall not be able to call Amendment 21 because of pre-emption.

Lord Howard of Rising: I shall speak also to Amendment 21. However, Amendment 20, moved by the noble Lord, Lord Eatwell, is certainly the better option, and I should like to express my support for it. His argument for allowing the banks to achieve legal certainty is extremely strong. But if the Government are not minded to accept his amendment to make the code of practice legally binding, I would ask the Minister to consider strengthening the code by making it compulsory for bodies to explain why they have not complied with it. Amendment 21 does not cover the ground as well or comprehensively as Amendment 20 does but it might go some way towards ensuring that the code is properly observed.
	As currently set out in the Bill, the Treasury, the Bank of England and the FSA are obliged only to "have regard" to the code. That will not give much comfort to anyone. Amendment 21 requires that a full and prompt explanation be given for why guidance in the code has been ignored. The purpose is to ensure that proper attention is given to the code and that its requirements cannot easily be disregarded, which is as it should be. There is no point in having a code that, for practical purposes, can be ignored. However, I say to the Minister that the amendment of the noble Lord, Lord Eatwell, is superior.

Lord Higgins: With regard to Amendment 20, I presume that the argument for the code is that it is comparatively flexible and not set out in terms that could make it legally binding. If it were possible to do that then of course we could stick it in the Bill, with suitable amendments if we wanted to alter it. However, that does not seem to me to be the purpose of the code; rather, it is to give the flexibility—or, to some extent, the degree of uncertainty—that would not be possible if it were to be legally binding and therefore enacted in the Bill.
	I find considerable attraction in Amendment 21. Simply saying that the authorities should "have regard" to the code, while that may be a well-worn phrase used by draftsmen, is somewhat inadequate in circumstances as important as those that we are discussing. A provision saying that they will comply with the code—or that they will publish the reasons why they decided not to comply with it—would be better than the form of words currently in the Bill. Equally, just having regard to it means that they can consider that they should not do so on a particular occasion and no one will know why that was so. It is better that they should be required to provide an explanation of why they are not complying with the code.

Lord Newby: I agree with everyone who has already spoken in this debate that the phrase "have regard to" is just too weak. As for which of the two amendments is preferable, I prefer that of the noble Lord, Lord Eatwell, just because it is the stronger. In response to the noble Lord, Lord Higgins, it is not unusual to have an amendable code that has legal force. In my early days in Customs and Excise we drafted special schemes for retailers, which I seem to remember had legal force although they were not formally part of the body of legislation. A sort of halfway house between a Statutory Instrument and an amendable code that people try to follow, which the noble Lord, Lord Eatwell, has tried to achieve here, has much to recommend it.

Viscount Eccles: I wonder whether the noble Lord, Lord Eatwell, would make more progress if he concentrated on the secondary legislation that will be part of the legally binding system. There is provision in the Bill for the largest number of Statutory Instruments that you could imagine; indeed, there are already two draft Statutory Instruments in the document that includes the code of practice. When you read the code, the only conclusion you can come to is that the author has been very careful to point out that this may happen in these circumstances and that will happen in those other circumstances, and the two things are not compatible—you have to make a choice about whether you do one or the other. Unless there is a major rethink, the code of practice cannot be made legally binding, although of course the words "have regard to" could well be strengthened.

Lord Davies of Oldham: Facing representations on these two amendments from all parts of the Committee, including the Benches behind me, puts me in a somewhat defensive pose. I am therefore going to rely to a certain extent on several of the contributions that help me with my case as well as making additional points, to which I need to respond.
	I am grateful to the noble Lord, Lord Higgins, for pointing out that if we had thought to make the code part of the legal framework, we ought to have put its contents into the Bill. There is a good reason why we have not done that. I recognise the additional points that he made, which I will respond to in a moment.
	Likewise, I am grateful to the noble Viscount, Lord Eccles, because he is right that my noble friend Lord Eatwell raises the most significant of issues with regard to the effectiveness of the legislation and has identified an area on which we need legal certainty and will need precision. It is a problem that we need to confront; indeed, it would have been remiss of us if we had not addressed it in this legislation. However, the noble Viscount is right that in Clause 48 and later clauses we have provision for secondary legislation that gives legal weight to specific areas that my noble friend has identified. We will come to those issues in due course, but I reassure my noble friend that we take his position seriously and his anxieties need to be addressed. We are addressing them with legal certainty—not the legal certainty of seeking to make the code a legal entity, but the legal certainty of secondary legislation, which surely ought to be preferred if my arguments about the issue of flexibility regarding the code meet the agreement of the Committee.
	The provisions of the code are intended to provide guidance. The code may set out provisions that should be taken into account, or it may provide for the approach that the authorities should normally seek to adopt. The expectation will be that the authorities should follow the code and that, if they do not, a public explanation will normally be needed. We are at one with the amendment to which the noble Lord, Lord Howard, spoke, to the extent that the code has those expectations built into it regarding the legislation. That is different, however, from a hard-edged statutory requirement to comply with the code, which would be inappropriate to its function and would be unduly restrictive on the flexibility of the authorities.
	The code is something to which the authorities must have regard, but it is not a rigid set of statutory requirements, nor does it have to be exhaustive in nature. That is just as well. I return to the obvious point about this legislation: it is difficult to identify from where a crisis emerges. The authorities have to respond. If we are overprescriptive about how they should act we may not anticipate a particular set of circumstances which all would subsequently agree the authorities had acted properly upon in identifying the problem and taking prompt action, when prompt action is in the very nature of the issues involved when we are discussing confidence in relation to financial structure. We might inhibit that opportunity because we had been prescriptive in primary legislation, and those opportunities do not occur that often.
	Primary legislation passed at this point in time is inevitably conditioned by the world we are in at present and by the many issues that the current crisis has identified, but that does not mean that it exhausts all potential threats to the financial system. That is why we not only seek to take on board the points identified by my noble friend Lord Eatwell and the concerns expressed by other contributors to this debate but also require some degree of flexibility, particularly as in other aspects, certainly with regard to making the code fully legally enforceable, it would have been better if we had drafted the Bill to include the code in those terms.
	There are good reasons, which I have identified, why we do not want to be saddled with that degree of rigidity. The status of the code means that authorities can provide greater guidance about the steps that can be anticipated to be taken under the special resolution regime than would otherwise be possible. Bank resolutions are likely to be very complex and varied in their nature and, dare I say, may have an element of unpredictability as well. One of the risks of imposing more rigid requirements would be that resolution scenarios would not be sufficiently anticipated and the authorities would not therefore be able to respond in any given situation in a manner best placed to achieve the special resolution objectives. For example, further provision can be made in the code on topics such as the meaning of the SRR objectives, how the authorities will balance the objectives in deciding between stabilisation options and how they will work together.
	We are only in the early stages of the Bill's proceedings but we have had enough evidence already of how much the prospective role of the authorities and how they will act exercise the Committee. I am merely indicating within this framework that there is some understanding in the Committee of the necessity for a degree of flexibility.
	Each section in the code can include more descriptive and therefore more helpful language on the intentions behind any specific action or requirement within it. That is why the code should not be in the Bill but can supplement it by providing information that it would not be appropriate to set out on the face of the Bill or in an instrument of similar status. The code will provide a significant amount of detail about the way in which the authorities will implement the SRR and can be updated to reflect experience gained from operating the special resolution regime without imposing hard-edged duties or requirements on the authorities. I recognise that there are other views about this issue in the Committee, but if we conceded the legal status of the code, we would introduce rigidities with regard to the legislation against a background where the main argument, as presented by my noble friend, was covered in subsequent provisions. I hope that my noble friend will therefore feel able, with some confidence, to withdraw his amendment.

Lord Higgins: While I agree with what the noble Lord has just said about the legal side, he has misrepresented what Amendment 21 does. It would not force the authorities to comply with the code but would say that they must comply or give an explanation. Of course, as he says, decisions may have to be taken in unexpected circumstances, and that would require deviation from the code. But surely that would be a great improvement if the authorities were to say why they had done so in those circumstances. Indeed, in view of recent events, it would certainly have been better if more explanation had been given at the time. Amendment 21 does not do what the Minister says and in the general spirit of good will prevailing in the Committee, I hope that he will at the very least be prepared to take it away and look at it again.

Lord Davies of Oldham: It goes without saying that we always look carefully at these debates. Even if a particular amendment did not re-emerge on Report, a different one might which would incorporate the same concept if our position was regarded as not being satisfactory. So of course I will look carefully at the arguments that have been mobilised, but the amendments are grouped together because they would both introduce into the Bill an element of legal rigidity. We are saying that the code will be followed, obeyed and responded to by the authorities but we are reluctant to see that imposed by statute. That is the basis of the Government's position, which is why I am hoping that my noble friend will, at least for today, withdraw his amendment.

Lord Eatwell: I am grateful to my noble friend Lord Davies of Oldham for the comprehensive discussion of the amendment. I quite understand his desire for flexibility—indeed, I argued for it on a previous amendment. However, I was attempting to point out that the desire for flexibility actually contradicts another goal of government policy, which is to encourage netting and the use of relatively simple financial instruments to replace the complex instruments which are felt to have been an important element in recent, rather unfortunate, events. Having said that, I feel quite strongly that the words "shall have regard to" are very weak indeed and introduce a degree of legal uncertainty which is likely to be significantly damaging in the operations of financial services.
	I have tabled amendments on the clauses to which my noble friend referred, specifically related to netting. I will be interested to see the Government's response to those amendments in the light of what I see as the need for legal certainty to increase simplicity and financial services. Having said that, I beg leave to withdraw the amendment.
	Amendment 20 withdrawn.
	Amendment 21 not moved.
	Clause 5 agreed.
	House resumed.

Retirement
	 — 
	Question for Short Debate

Tabled By Baroness Greengross
	To ask Her Majesty's Government whether they plan to reform default retirement ages.

Baroness Greengross: My Lords, the Employment Equality (Age) Regulations 2006 implemented a European directive which outlawed age discrimination in employment and adult education. However, the regulations introduced a national default retirement age as an exception to the general principle of non-discrimination on the grounds of age. This means that it is lawful for employers to operate a mandatory retirement age of 65, in effect getting rid of people automatically just because they are deemed to be too old to do a job. There is provision for an appeal, but the effect remains that if an employer wishes to terminate someone's employment at 65, normally it will happen.
	A recent survey by the Chartered Institute of Personnel and Development with KPMG suggests that in the current economic climate, almost one in five employers said that they were going to enforce the retirement age of 65 more vigorously. That means that even more people will be turfed out of their job on the assumption that they are too old, regardless of whether they are or not.
	When the regulations came into effect, the Government justified the default retirement age at 65 for the next five years as a legitimate aim of social policy on the grounds that it assisted employers in manpower planning, but they committed to review the arrangements in 2011. At the time, this annoyed many older people, who pointed out that they would be too old—more likely dead—by then.
	The review will look at the extent to which employees' right to request to stay at work beyond 65 will have created a culture which reduces reliance on the old-style cut-off date of retirement. It cannot be right that, on one day, you are a person with a job, status and the recognition that goes with it, and that, on the next, you have a 65th birthday and, just because of it, you lose the lot. However, to change this culture is a formidable task, but we have to take it on board. Equality legislation should be precisely that. As a commissioner at the Equality and Human Rights Commission, I believe that the default retirement age is a serious blot on our equalities landscape. Discrimination is not acceptable in the case of gender, race or disability; it should not be in respect of age.
	I am aware, however, of understandable concerns of bodies such as the Engineering Employers Federation, which argues strongly that any change to current arrangements will adversely affect the UK's competitive position and that, fearing expensive litigation, some employers will retain older workers who are not the best people for a job. They believe also that removing the default age of retirement will undermine workforce morale and result in "dead-men's-shoes" succession planning problems. They believe also that management time would be diverted to dealing with industrial tribunal cases brought by disgruntled workers, whatever their age, whose performance had been deemed unsatisfactory. However, I strongly believe that in a country where we are promoting equality as a societal norm we must find ways of addressing these concerns rather than allowing them to be used as a means of retaining the unjust system currently in place.
	Any good employer should have in place an appraisal system that ensures that its employees are competent and meet their delivery targets. Surely this is even more important in the current economic climate. However, if after appropriate support and training an employee, whatever their age, fails to deliver, it is surely for the good of the organisation and its other employees that an employer should consider whether to retain that employee in the workforce.
	It is this test of competence, through annual appraisals, that gives us the way forward for removing the DRA. It is not easy for a young manager to tell an employee who is the age of his father or perhaps his grandfather that he or she is no longer competent to do the job that they have been doing for years. If companies' appraisal systems are applied properly throughout an organisation to employees of all ages, those people who are able to contribute effectively to the success of the organisation can do so whether they are 25 or 65.
	Those who express concern make a good point about the termination of employment of long-standing workers who would under present arrangements retire perhaps with a clock and some good will, but who might be perceived under a new regime as having been sacked for incompetence. I would expect employers to maintain morale by recognising years of loyal, good service, as many do now, through measures such as long-service awards and retirement presentations, but they must be based on performance, not on age.
	If competence becomes the test by which to determine continued employment, certain benefits would stem from the abolition of the default retirement age. First, companies would retain existing talents within their workforce without the need at considerable cost to recruit and train new people to replace those who currently retire at 65 and to cover their posts while the recruitment and training process is under way. The Chartered Institute of Personnel and Development estimates that the average cost of replacing a manager or professional person is £10,000, so it is quite expensive. Secondly, it would help address the ratio of workers to non-workers in our population, which, without action, is forecast to become 54.7 inactive people over 65 for every 100 workers by 2050. It is an issue of which I am very well aware as chief executive of the International Longevity Centre. Thirdly, and perhaps most importantly, it would help address the growing pensions crisis by extending some employees' working lives and enabling them to contribute more money to their pension schemes, which was one of the key recommendations of the noble Lord, Lord Turner, in his review of pensions policy. Fourthly, it would provide an opportunity to raise more revenue if national insurance contributions and direct taxation were to be applied to earned income irrespective of the age of the worker, a policy which seems justified on grounds of equality if the argument for abolishing the default retirement age is based on equality.
	A number of substantial employers, and the Government in respect of the Civil Service, are already implementing no-mandatory-retirement-age policies; for example, B&Q, Defra, the DCLG, Hertfordshire County Council, HM Revenue & Customs, M&S and Sainsbury's and many more. All have adopted such a policy; it works for them; and, in many cases, customers are recorded as welcoming being able to ask an older employee, especially somewhere like B&Q, "Which is the right screwdriver?" and "What do I do if I want to put up some shelves?"—I know that I have been in that position myself. It is very helpful to ask someone who has done it for many years.
	We need to change our thinking so that employees are treated on an equal footing throughout their working lives, with the same opportunities to progress and the same requirement to show competency to deliver at the age of 65 as at the age of 30. Chronological age is an inadequate proxy for capability. Some people are over the hill at 35; but some are competent, quick-witted and innovative at 65, and the cost of losing such talent is unacceptable. In the future, our society will be judged by its basic fairness and humanity, especially in a period of economic downturn.

Baroness Turner of Camden: My Lords, I thank the noble Baroness, Lady Greengross, for introducing this timely debate. I understand that the default retirement age of 65 is due for review by 2011.
	It is now widely accepted that we are all living longer. The Government appear to accept this when they talk about pension entitlement. There is also frequently expressed concern about the increased demands which may be placed on the NHS as a result of an ageing population. But this does not have to happen.
	A healthy population is likely to be active. When competent individuals who want and need to work are removed from the workforce, not only is it a waste of valuable assets, but it may result in ill health which might not have occurred had they been actively involved in a working environment.
	An unintended consequence of the introduction of a default retirement age in the age regulations has been the forced retirement at the age of 65 of employees who would otherwise have been able to continue working beyond that age. A recent survey revealed that, in the current economic climate, almost one in five employers said that they would try to enforce retirement at 65 more vigorously. The right to continue to work beyond retirement age is included in the regulations, but it is weak. An employer has a duty to consider an individual's wishes, but can refuse without giving a reason. Many employers refuse all requests to work beyond 65 to avoid setting a precedent.
	It is clear that many older people want to work, but are effectively prevented from doing so because of the existence of the default retirement age. In the current financial crisis, many more people will need to work beyond the age of 65 because of the falling value of their pensions, which is regrettable, and the drop in interest rates, which is diminishing substantially any income from savings.
	Of course, there are types of employment, including heavy manual or possibly dangerous physical work—the construction industry comes to mind—where employees may wish to retire early or at least be provided with work that is less physically demanding. But these jobs are in a minority; we are here talking about vast ranges of non-manual employment where employees are quite competent and willing, indeed desirous, of continuing in employment.
	The research on which a lot of what I am saying is based tells us:
	"The age discrimination legislation has made it worse for those of retirement age who want to continue working. Employers have found they can use the Act to their advantage and retire an employee without any problems".
	The Government have said that they have plans to end mandatory retirement age by 2010 for all non-senior civil servants. Those working in the private sector and other parts of the public sector should have the same choice about retirement. The existence of the default retirement age seems at odds with the Government's exhortations to people to extend their working lives to ensure that they are comfortable in retirement and non-benefit-dependent. That is very important. I await with interest the Minister's response.

Lord Selsdon: My Lords, I have to declare an interest in that I am long past my sell-by date. In accordance with the age prescriptions of your Lordships' House, I believe that it is only the noble Lord, Lord Stevenson, from the Back Benches, who has 18 months to go before he should technically be put down. Young Front-Bench people will have no problem.
	I shall approach this from a different point of view. I have a great respect for age. Some of that has come from 46 years in your Lordships' House, where I have been drip fed by people who I thought were geriatrics before I made the average age. The learning is always there.
	What I am going to suggest now may be a bit radical, even for myself. I do not believe that any cap should be put on people's working age; they should be allowed to go on working as long as they want to. The problem we have is that, in the bureaucracy in which we live, at a certain age in life people are entitled to a pension. Possibly when people reach the retirement age—perhaps when women are treated equally with men, although they do live three years longer than men, on average—those who continue to work should be paid tax-free, with no obligation for any contributions by the employee to the state.
	In this strange economic world in which we live, at one level people say that we must reduce employment. Your Lordships will be aware that there are companies that have issued instructions across the world, saying to heads of department that they must reduce the number of people that they employ by 20, 30 or 40 per cent. Those who were intelligent and saw this coming have already worked out that there are people whom they might like to have dismissed two years ago and have therefore garaged the reserves. There will be industries—probably the larger organisations—that will say that it may be better to get rid of the older ones and not take on any more of the younger ones. Therefore, you have a period of stagnation in employment, which may be quite worrying.
	We have a high unemployment forecast—and I do not mind admitting that in the past when I have written papers making forecasts, I have always exaggerated and been horrified when I turned out to be right. I thought that the suggestion many years ago that we could have 22 per cent inflation and 17 per cent interest rates was in the extreme and wrong. Now we have possibilities of very high unemployment—and the wrong sort of unemployment. The older age group are having a problem. When those who have been wise and have saved, and who have hidden things under a bushel, are required at the age of 75 to take out a policy or surrender their capital, what will they get in terms of an annuity? Those who have their savings on deposit at the moment may find that even 1 per cent is on the high side. So what is the answer for the older people? It is to go on working. If a formula could be introduced so that those who have reached the statutory retirement age could go on being employed at a lower cost, because there were no added values, we may arrive somewhere quite interesting.
	We are faced with an economic crisis that is related possibly more to industry than we realise, and not to service industries. The logical thing that you do in a recession is to train everybody you can think of for all you are worth—and the best trainers are usually those in the older generation who have experience. In parallel, when you are looking at age, as the noble Baroness, Lady Greengross, said, there is no one factor that determines whether you go on working. It can be physical or it can be mental. We all forget what it is we intended to do next, but we can remember what it is we were doing 50 years ago.
	The worry that I have is that if we concentrate solely on the bureaucracy of getting rid of a regulation, we will be wrong to do so. If employers can be encouraged to recognise that there is some economic benefit to themselves in retaining people longer—or, perhaps more positively, in going out and recruiting those in the older age group—we will find something worth while.
	I return to where I came in. I used to be in the asbestos industry, which is not the best thing to have been in. We did industrial and economic research. I was asked one day, with my team, if we would be bold enough to put a value on a human life. What is a person worth, throughout the seven ages of man? Is there an economic value that you can put on it? What does it cost if there is a death? We were talking in those days about road accidents. I believe that the older people in this country have a greater value now than they have had in the past 25 years.

Baroness Afshar: My Lords, I thank my noble friend Lady Greengross for putting this Question to the House. I declare an interest, because I am rapidly approaching the age of 65, so the axe is about to fall. I am fortunate in serving in your Lordships' House, where you might keep me for a bit longer, and also at a university where, as yet, our contractual agreement to work until 67 has not been revoked.
	I find the imposition of a compulsory retirement age very problematic. I find it problematic culturally because I grew up in a society in which old age was venerated. As a result, I have celebrated every birthday as a step towards achievement, so I would find it very difficult to discover at the age of 65 that I have suddenly failed to achieve. This notion of respect for older people, which I am glad to see is shared in this House, is a common concept in the Middle East. In a recent study that we did in West Yorkshire, working with women of different origins, we found that that respect for old age and the experience and knowledge of old age is shared by Polish and Irish and by many working-class British women, as well as the Muslim women with whom we were working.
	We found as part of our research that the most successful women, who made the least demand on the health services and social services and even on the churches and support systems, were the women who had a strong sense of functionality—people who served their communities, had a job and served their families. They felt an obligation to get up and go to work and do something. We had one wonderful case of a lovely lady whose grandchildren had left and who was feeling a little bit old. She collected a young man—a drug addict—from the side of the street and decided to adopt him and shake him into shape, so that again her life had a focus.
	We also found that being paid for the work that they did was incredibly important to those women. Research after research indicates that older women are the most dispossessed and the poorest as well as the people with the least amount of advantage in our society. We now have a cohort of women who have worked in full-time employment and, therefore, may have the possibility of not ending on the poor heap. It will be a great sorrow if, just as we are about to achieve the same status as men, with a decent retirement age and pension, those of us who had to pull out because we had babies or other caring responsibilities suddenly find that we cannot actually do the years that we need to get to a decent retirement age because we are chopped off. Therefore, there was this sudden death experience for the people we talked to.
	We talked to many successful, retired people, who enjoyed going to more theatres, concerts and so on, but those women who had depended on a wage felt that without a decent income they did not have an identity. They could not support their families, provide presents at Christmas or keep themselves warm. Therefore, they became dysfunctional, dependent categories.
	In this age of equality and equal opportunity, to have a provision that intentionally creates more people that are dysfunctional seems to me to be a great pity. Therefore, I very much hope that the Government will consider doing something about it.

Lord Giddens: My Lords, I congratulate the noble Baroness, Lady Greengross, on having initiated this debate and on her elegant introduction, which made me feel a bit uneasy as I feel that I am one of those people over the hill at 35 who were so aptly identified.
	About 15 years ago, I gave a speech to IG Metall, which is the biggest metal- working union in Germany. It proved to be a very heated kind of encounter. At that point, the union's policy was to press for the statutory retirement age to be reduced to 60. I went to the discussion and said that I thought there should be no statutory retirement age and that people should be able to work as long as they wanted to work, given the normal conditions that apply to people of any age. It caused a furious confrontation. Since then, things have moved on. The climate of opinion in Europe and in this country has changed substantially, and the policy of that union has been reversed.
	In Europe, we have had the equal treatment framework directive, and in the UK the UK Employment Equality (Age) Regulations of 2006, to which this debate refers. I agree with all the other speakers who said that regulations that still allow employers to retire workers against their will at age 65 are a serious anomaly. When he was a Minister of State for Pensions in 2004, Malcolm Wicks said:
	"Mandatory retirement age should be thrown into the dustbin of social history".
	He was right to make that statement.
	We are in a transitory situation with regard to the law because we do not know what is going to happen with the Heyday case. It is still not clear what the ultimate response of the European Court of Justice will be to that, or, indeed, what the response of the Government here will be to its decision. It seems to me, along with other speakers, that the arguments in favour of scrapping the default retirement age are very much stronger than those that can be deployed to keep it. I list them as four. First, having a statutory retirement age of any kind is a form of discrimination and should be contested in the same way as any other form of discrimination is. The noble Baroness made that point very effectively in her introduction.
	Secondly, anyone who studies pensions and has read the Turner report knows that we need a higher proportion of older people in the labour force. They also know that the UK is not doing as well as some other countries, which have liberalised their age of retirement in a much more radical way than the UK has done—for example, in the United States at a federal level.
	Thirdly, as has been said, keeping older people in the labour force if they want to stay in it—and many people do—preserves and helps dignify experience in the workplace. That is a positive attribute. Fourthly, we have plenty of studies that show it does not harm younger workers. You might think intuitively that if you keep older workers on, and you allow them to stay on beyond a statutory retirement age, it would reduce the proportion of younger workers entering the labour force. The opposite is true. You can see that if you compare different European countries—for example, in Greece, you have a very low rate of unemployment among younger people and you have a very low proportion of older people in work. Those two things are tied together. In Finland, you have a higher proportion of people who work in both categories, so those things seem to be tied to one another rather than in opposition.
	I conclude by asking the Minister to respond to three questions. First, does he agree that ageism is a form of discrimination like any other and should be contested with equal rigour? Secondly, does he agree that the Government should be trying to increase the proportion of older people in the labour force, rather than, as the existing legislation seems to suggest, doing the opposite? Thirdly, since a review is projected for 2011, what studies are being carried out to help the Government reach a decision on this issue?

Lord Stevenson of Coddenham: My Lords, I start by joining others in congratulating the noble Baroness Lady Greengross, on bringing a debate about a subject that is somewhat specialist but hugely important. I express the hope to the Minister that this will pave the way to what can only be called a win-win solution for Government to extend their own decision, at least for central government, to the rest of the country. Incidentally, it is worth congratulating the Government on having decided to remove mandatory retirement age for civil servants in central government.
	I say to the noble Lord, Lord Selsdon, that I should declare a real interest in that I am president of the EFA, the Employers Forum on Age, which represents a large number of large employers on matters of age. Incidentally, the stimulus to set it up came from the noble Baroness many years ago when she ran Age Concern. The arguments for the benefits of the Government just going ahead and getting rid of this rather foolish default have been made very clear. I shall not repeat them. There are strong social and human arguments, but the killer arguments are the resource arguments, which have been so eloquently argued by the previous speaker and other noble Lords. We should use our financial resources better and, above all, our human resources.
	However, it may be worth spending a moment addressing the elephant in the room. Why are we here? Why is there a reluctance to do this? As someone who would be seen, rightly, as being in the employers' corner of the ring, I can tell noble Lords that it is very simply that many employers are nervous about this move. I tread into sensitive ground, and I will put it in an extreme way. They are nervous that if the default is removed, they run the risk of an ageing and less than competent workforce and of losing control of their manpower planning. It is difficult to admit in public, but that is the reality. I have read some very delicate words, and the EFA and various others make it plain.
	Particularly at the moment, that is an understandable but wholly mistaken nervousness. Well run businesses, whether small or large, appraise performance, and do so on an ongoing basis. We live in a country where there is flexible legislation that enables well run businesses to ask underperforming colleagues to leave, whether they are young, middle aged or old. They need have no nerves. The corollary of that is that it is grotesquely silly that an able, high-performing human being should be forced to leave because he or she reaches a certain age.
	I have another argument, which I hope will appeal to the noble Lord, Lord Selsdon. Being 65 is not what it used to be. I owe this insight to the noble Baroness, Lady Murphy, who was one of the country's leading experts in geriatric medicine. When I reached the ripe old age of 60 a few years ago she consoled me by explaining that as a result of changes in diet, health, science and medicine, to get to your equivalent age in your parents' generation you need to take 12 years off. Therefore, at aged 60 I was 48 in my father's years. That is very bad news for the Minister because that puts him roughly back at university. I say to the Minister that if for any reason the Government are not minded to move the default retirement age, or whatever it is called, there is a perfectly logical corollary of that that I do not advocate but I mention, which is to change the age from 65 to 77. The Minister, I am glad to say, has huge experience in running large businesses and knows about this from the coalface and about well run and well appraised organisations. I hope he will lead the way in persuading the Government to do something that will win-win all the way.

Lord Oakeshott of Seagrove Bay: My Lords, I join the paean of praise to the noble Baroness, Lady Greengross, for introducing this highly relevant debate. I agreed with every word that she said, as I usually do. "Performance, not age", as she put it. She is an example to us all.
	I also welcome back the noble Lord, Lord Stevenson of Coddenham. We have missed his sparkling contributions while he has been carrying out his long, distinguished chairmanship of the House of Lords Appointments Commission, in which position he has served us all very well in turbulent times. We are delighted to have him back.
	In our view, this is simple. We should not assume that just because someone has reached a particular age they are not fit to do a particular job. People should be judged on the basis of their ability to do that job, not by their date of birth. We do not think that if compulsory retirement age is abolished a large proportion of the workforce will want to retire significantly later than the present standard ages. However, as various noble Lords have said, when many people may now live healthily even to an age of 90 or beyond, individuals are entitled to be judged on their abilities instead of having their career cut off in what may well be, as the noble Baroness, Lady Afshar, pointed out, its prime.
	Various noble Lords have told us about the change in the Civil Service and highly reputable and efficient employers like B&Q, Sainsbury's the Co-op and so on, which are already operating without a standard retirement age. Even the Cabinet Office is doing it, where people with public sector pensions do not in most cases have the economic pressure we have heard about under which they cannot afford to retire. We must face the fact that more and more 65 year-olds still have mortgage debts. Many of them have seriously shrinking pensions pots, as the noble Lord, Lord Selsdon, and the noble Baroness, Lady Turner, have pointed out.
	The noble Lord, Lord Stevenson, put it very well with his great business experience: a mandatory retirement age is frankly a cop-out for employers. I have been briefed, which I greatly appreciate, by the EEF and the CBI on their view that there is still a case for a DRA, but I am afraid that I do not find them persuasive. It seems in many ways to be an excuse for bad management. If somebody is 61, 62 or 63 and not performing, people quite often duck out of taking the necessary decision to work them out at that stage. You can argue either way from a businesses efficiency perspective, so I am not persuaded by those arguments.
	Flexibility is obviously key. Part of our problem in this country is that people somehow assume that you go right on up to the pinnacle of your career and then suddenly stop. Other countries have a much more sensible attitude: if people reach a certain age, perhaps they wind down into a less senior or demanding job where they contribute better, or start working part time. Again, we do not want a standard cut-off. I say to the CBI and the EEF that businesses are normally and rightly against centralised regulation. Why on earth, then, are they in favour, in this particular case, of a centrally decided, one-size-fits-all retirement age? That does not make sense to me.
	Finally—because several points I wanted to make have already been made so well—I have, rather like Pooh-Bah in The Mikado, a little list. It is actually rather a long list and, were we to go by it, many of us would be missed: 512 of the 743 Members of this House are over 65; that is 70 per cent. Indeed, 351 of us, almost half, would still be for the chop if we had a default retirement age of 70. In the Commons, the figures are a bit less, but it is still quite a significant number: 12 per cent, as 88 out of 646 are over 65. On this basis, if no other, we are left with the strongest argument of all against a default retirement age: enlightened self-interest.

Lord De Mauley: My Lords, we are all most grateful to the noble Baroness, Lady Greengross, for tabling this Question for Short Debate on what we must surely all agree is such an important subject. As we have heard, the current national default retirement age is 65, and employees have the right to request that they continue to work beyond that age. The Government's decision to have a national default retirement age is to be reviewed five years from implementation of the European employment directive, although it is of course now subject to a legal challenge.
	As my noble friend Lord Selsdon said, we on these Benches strongly agree that people should be able—indeed, encouraged—to work on after normal retirement age where they are willing and able to do so. As the noble Lord, Lord Stevenson, said so aptly, 65 ain't what it used to be. Such people have worked hard for many years. Often they prefer to continue to work as a lifestyle decision, and we in this House all know how much better working can be for one's health than not working.
	Alternatively, such people's pensions may have been destroyed by a combination of the abolishment of the ACT credit and the effects of falling stock markets, so that they have to continue to work whether they want to or not. Furthermore, as the noble Lord, Lord Giddens, mentioned, the demographics will mean that employers will need to employ older people. For years ahead—at least, once we have emerged from economic downturn—there will be an inadequate supply of younger people available.
	On the other hand, the last thing we need, especially in these extremely difficult times for business, is yet more changes to our employment legislation. Since 1997, this Government have introduced no less than 18 Acts of Parliament and a staggering 280 statutory instruments dealing directly with employment. Employers are reeling under this colossal and barely manageable burden. It has had a profoundly negative impact on UK business and its competitiveness. A year ago, the Federation of Small Businesses found that 30 per cent of small businesses would not be hiring any new staff at all. That, I need hardly say, was before the cold wind of the economic downturn was felt. One can only imagine what that proportion would be now.
	The last thing, surely, any sane Government would want to do would be to exacerbate the problem by reducing flexibility in the labour market even further, at a time when our economy is weakening faster then our competitors' and unemployment is growing by the day. Even John Hutton, until not long ago the Secretary of State for Business, recently admitted that there was a,
	"need to challenge the automatic assumption that the only way to deal with exploitation in the workplace is by passing new laws".
	Furthermore, there is a considerable amount of litigation waiting in the wings, encouraged by the fact of the ongoing judicial review by the ECJ. This is making employers more reluctant to employ older people, something that several noble Lords have referred to this evening.
	We on these Benches consider that retirement should be flexible and viewed as a process rather than focused on a specific age. For example, people with physical jobs should be able to opt to be retrained to take on jobs which, while less physically demanding, can utilise their valuable experience. Others may opt to move into part-time work for a few years before final retirement. Retirement needs to become a process rather than an event. It is the case that, with an ageing of the population, once growth returns there will be a natural progression to businesses employing older people because they will have no option. As I said earlier, there simply will not be enough younger people to employ.
	I have the following questions for the Minister. First, I referred earlier to the fact that the Government's decision to have a national default retirement age is to be reviewed five years from implementation of the European employment directive—although it is subject to legal challenge on judicial review, on which the European Court has just issued a provisional ruling. Can the Minister say what the Government's current expectation is as to the likely outcome of all this, especially given that the stakeholder group established to inform the review has not met for nearly a year? Secondly, as the noble Lord, Lord Giddens, asked, when the end of the five-year review period approaches, what procedure will the Government follow to decide on whether there should continue to be a national default retirement age, and, if so, what it should be?

Lord Carter of Barnes: My Lords, if anyone was in any doubt, it seems clear that 60 is the new 40. In listening to the debate I was reminded of a cartoon from the Wall Street Journal that a friend sent me, which showed a young man walking into an office where a clearly older man sat behind a desk. The caption read, "He's young. I've never liked that in a man". If anyone was in any doubt about the sense of humour of the Whips' Office, they should note that it has fallen to me to answer this debate on behalf of the Government.
	The noble Baroness, Lady Greengross, made the powerful point that chronology is no measure of capability. This evening's debate has ably highlighted that. I hope that my response will not serve to underscore her point too well. Before I get into my formal remarks I should say that it seems clear to me, coming fresh to this, that we are discussing a culture change, and culture changes are rarely fast. Listening to the debate, particularly the remarks of the noble Lord, Lord Stevenson, and the noble Baroness, Lady Greengross, I was reminded that achieving culture change and getting the right balance between the role of legislation and government position and willing participation from business is always a series of fine judgments. In essence, this evening's debate is about whether we have that fine judgment correct. If I am allowed a personal reflection, it reminded me of the first management decision I ever made at the tender age of 31. I was doing an appraisal of a 59 year-old who was clearly underperforming. I went to see my then mentor and said to him, "I'm deeply conscious that I am 31 and he is 59 and I have to undertake his management appraisal". The individual in question said, "Stephen, be fair, be transparent, rely on our appraisals and our review systems and, by the way, ignore his age and your own, and if you make the wrong decision, be bloody generous". That was good advice but that was 15 years ago. It is not evident to me that businesses across the piece—which I think is the point the noble Lord, Lord Stevenson, was making—are universally demonstrating that level of best management practice. Therefore, I recognise the significance of the issues that the noble Baroness and others raised. Retirement is an important issue for all of us. As someone who was under the age of 47 when the state pension age rises were announced in 2007, I am part of that generation who know explicitly that we shall need to work for longer than our parents.
	The point has been made this evening that the declining value of annuities funding retirement is a pressing concern for many people, particularly for those who are not sitting on public sector provided pensions, as the noble Lord, Lord Oakeshott, pointed out. We are therefore considering how to refresh our ageing strategy. A public consultation on the direction of the strategy closes on 10 March. The 2000 Act age regulations prohibit age discrimination in employment and vocational training, which in part answers the point made by the noble Baroness, Lady Greengross, about competence and good management. They apply to all individuals in work or seeking work or access to training, all employers and all providers of vocational training. The change has been described by the Employers Forum on Age as the most significant change to employment law since the Sex Discrimination Act 1975. It might be argued, as many have this evening, that the change was long overdue, but it was nevertheless a huge step into the unknown, or certainly into the uncertain, for employers and employees alike, and one could argue that employers were facing other significant changes. The regulations benefit everyone because we all get older. They also protect young people. They are about discrimination against any age group at any time. As regards the points made by the noble Lord, Lord Selsdon, on redundancy, they expressly forbid discrimination in redundancy selection on grounds of age.
	The regulations implement the UK's obligations in relation to discrimination on grounds of age under the Council directive. The directive establishes a general framework for equal treatment in employment and occupation, including vocational training. It requires member states to ensure that they have legislation in place outlawing discrimination on the grounds of sexual orientation, religion or belief and age as well as disability. As noble Lords know, the regulations include a number of exemptions in relation to retirement—the subject of tonight's debate—and service-related benefits, and provide for other differences of treatment if they can be objectively justified. One of our aims when developing the regulations was for light-touch implementation that struck the right balance between tackling age discrimination effectively by giving important and much needed rights to individuals while allowing businesses to operate productively but fairly, particularly those businesses which could not see the self-interest arguments.
	The legislation was developed as a result of what I think could be underdescribed as extensive consultation, both formal and informal, with a full range of stakeholders. The default retirement age is an important element of the regulations and one which I realise has clearly not enjoyed universal support. If noble Lords will forgive me, I should like to restate for the record what it is, how it was hoped that it would work positively and what might be its medium to long-term future. The default retirement age is not a national mandatory retirement age. Employers do not have to retire employees once they reach 65. They are free to continue to employ them as long as they like. Instead, the default retirement age allows employers to continue to use retirement as a tool for workforce planning. Employers who do not wish to use the DRA are free to continue employing workers beyond the age of 65 for as long as they wish. Many employers are operating without fixed retirement ages across the public and private sectors and supporting flexible approaches to retirement to meet the needs of businesses and employees alike. But where employers set a retirement age, either 65 or another, in order to retire an employee, the employer must follow a statutory procedure. As was pointed out this evening, this is in part a right but with a limited number of teeth. By my calculations, somewhere between 170,000 and 200,000 employers a year find themselves able to exercise that right. My judgment is that in a well managed company that right is a useful one to have. In an averagely managed company it is essential to have that right. In a badly managed company one could argue that the right is not sufficient. Therein lies the crux of that debate.
	The regulations have delivered significant benefits for older people. For example, upper age limits on unfair dismissal and redundancy have been abolished and companies with retirement ages lower than 65 have had to raise them to 65 unless they are able objectively to justify their reason for retaining a normal retirement age below 65. I should be interested to hear more about the evidence referred to by my noble friend Lady Turner on employers who have used the legislation to lower their companies' retirement age.
	The Government provided for the default retirement age on the basis of the evidence available at the time, which was almost by definition a relatively limited evidence base. We recognise that circumstances can change, and we made a public commitment to review the default retirement age in 2011. In addition, through the DWP Age Positive initiative, the Government are working with employers and business lead bodies to share good practice in the employment and retention of older workers, including the adoption of flexible approaches to work and retirement.
	On the point made by the noble Lord, Lord Selsdon, about encouraging employers to recognise the benefits of employing older workers, the new statutory right to request does ensure the dialogue between employers and employees who want to work beyond retirement, and this will help to accelerate the culture change necessary for employers to recognise the contribution that older employees make.
	The figures from the Office for National Statistics and the Labour Force Survey have shown that opportunities for older workers have been increasing, as employment figures for those up to age 65 and beyond have been rising consistently. The employment rate of men aged 65 and over has risen from 7 per cent in quarter 3 of 1998 to over 10 per cent in quarter 3 of 2008. For women aged 60 and over, it has increased from 7.8 per cent in 1998 to nearly 12.5 per cent in the third quarter of last year. These increases are larger than those seen during the same period in the overall employment rate of men and women of working age, so there are early signs of change in that process. On the point which I think was also raised by the noble Lord, Lord Selsdon, on the tax on earnings beyond the state retirement age, people who work past the state pension age do not pay national insurance and those who work past age 65 have a higher income tax allowance, as I am sure he is aware, so they keep more of what they earn.
	Most of the rise in employment rates of older workers has been due to retention in the workplace. As we all know and as was restated tonight, since the default retirement age was introduced, the economic landscape has changed dramatically. That point was made by a number of speakers tonight and was passionately made by the noble Baroness, Lady Afshar. People may want or need to work longer to boost savings or to enhance pensions or their own individual financial position, and we are more than committed to working with employers to promote the retention of skilled workers, both younger and older. As has recently been highlighted, these are the workers that will help businesses pull through and out of the economic downturn as markets improve. Conversely, they may be those who are often worst hit.
	We are monitoring the legislation, as we said we would in our impact assessment, in preparation for the review that we have committed to publicly. The legislation needs some time to bed in so that we can properly judge its effectiveness. To change that at this stage would be a level of change too much. We need to make a judgment on whether the age regulations have created the sort of culture change that this evening's debate has argued for. Our long-term aim has always been to achieve a culture in which compulsory retirement ages are no longer required. We will continue to closely monitor the trends in employment rates by age and, in our coming research on employer policies and practices on that specific question, we will explore the issues and up-to-date evidence concerning the use of fixed retirement ages.
	As has been pointed out tonight, we also need to hear what the ECJ says, if anything, in the Age Concern judicial review about the directive in relation to retirement, and what the High Court says in turn, once the case returns to our own courts for a decision. We will take due account of that and of all the up-to-date information available in ensuring that we arrive at an appropriate outcome in our review, which is currently planned for 2011.
	The noble Baroness tabled today's debate to ask about the Government's plan to reform the default retirement age. Our plans are to review it. We provided for the default retirement age because we examined the evidence and concluded that we needed it. We will reform it when the evidence shows that it is the right thing to do. I am afraid that I am not going to pre-empt the review, which is rightly to be firmly evidence-based. Skilled older and younger workers can be the key to maintaining business productivity, recovery and renewed growth, and the review will take full account of the position that businesses and older workers face in the prevailing markets.
	On the question asked by my noble friend Lord Giddens, age is, in truth, common to us all, even if it is not evenly distributed at any particular point in time. Perversely perhaps because of that, we need to work even harder on this point of discrimination.
	I am grateful to all noble Lords who have taken part in today's debate on the default retirement age. I am sure that my right honourable friends in Cabinet will look with interest at the points raised in the debate. It is a key element of our strategy to make work pay and help older people remain in employment. As I have said, we will reform it when evidence shows that it is the right thing to do, ensuring that businesses can continue to operate effectively and that we balance the need for the culture change that we all wish for with the ability for it to be adopted in a willing and constructive manner.
	Sitting suspended.

Banking Bill

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	Amendments
	DPCommittee: 1st Report

Committee (1st Day) (Continued)

Clause 6: Code of practice: procedure
	Amendment 22
	 Moved by Baroness Noakes
	22: Clause 6, page 4, line 15, at end insert ", and
	( ) the Banking Liaison Panel referred to in section 10."

Baroness Noakes: I shall speak also to Amendment 23 in this group. Both amendments concern consultation on the code of practice required by Clause 6 before that code is issued.
	Amendment 22 requires the Treasury to consult the Banking Liaison Panel, which is constituted by Clause 10. The Minister will be aware that the panel has been welcomed by the financial community. Early feedback from the meetings of the panel's forerunner, the expert liaison group, indicates that it is fulfilling a useful function. However, Clause 10 confines the role of the panel to advising on matters contained in secondary legislation.
	Although we shall debate the issue in the next amendment, no parliamentary approval is attached to the code of practice and, hence, there is no involvement of the panel. The Banking Liaison Panel was not in the Bill when it was introduced in another place. The Government introduced the panel by way of an amendment moved on the last day of Committee in another place. I suggest to the Minister that the exclusion of the panel from the Clause 6 consultation process was an oversight, and I invite him to agree to the panel's inclusion by way of the amendment.
	While the involvement of the panel would be a wise addition to the development of the code of practice, it is incumbent on the Treasury to consult more widely than its inner circle—whether or not that circle includes the panel. Hence, Amendment 23 requires the Treasury to consult persons who have relevant knowledge of the matters contained in the code of practice.
	The Minister may well say that of course the Treasury will consult, as all good government departments do this in accordance with Cabinet Office guidance. However, we do not believe that it is wise to rely on informal and non-binding guidance where something is involved that is as important as the code will be for the banking industry. I freely acknowledge that the availability of the draft code during Committee in another place has meant that it has had wide exposure but good practice today cannot frank all future issues or revisions of the code, and those, not the current draft code in circulation, are the main focus of my amendment. I hope that the Minister will agree. I beg to move.

Lord Davies of Oldham: I reassure the noble Baroness that this part of the Bill and the areas that relate to the stabilisation powers and secondary legislation on safeguards are the subject of ongoing consultations. We are interested in developing the Bill in a way that interested parties should continue to welcome. The noble Baroness has already indicated that the expert panel, which has been subject to consultation, has done good work. It is a precursor of the Banking Liaison Panel and we are sure that it will continue that excellent process.
	The process of consultation has not been set out in the Bill and nor, as a general rule, do we think that it should be because it is already covered by the relevant Cabinet Office and better regulation guidelines on the development of secondary legislation. The process of consultation, which all government departments observe, follows well established guidelines which largely meet the noble Baroness's objectives, which we share—namely, that on certain aspects of the Bill, particularly with regard to secondary legislation, adequate consultation should be a precursor to the instruments being refined and then laid.
	Throughout the process of producing the Bill and its supporting documents, we have engaged very fully with interested parties. We intend to continue to follow Cabinet Office guidelines in producing and consulting on the new secondary legislation and other documentation supporting the special resolution regime.
	I recognise that there is interest in the code, as testified to during our earlier debates. That is why we published a draft for consultation and sent a prior version to the expert liaison group. As I said, I am pleased that the noble Baroness felt able to express approval for the panel's work. I assure her that the consultation will continue in future on the code's development. Therefore, in terms of the way in which we have handled this process—not only in relation to the Bill but also through the guidelines on the development of secondary legislation that now obtain—we do not think her amendment necessary. However, we entirely agree with her objective of ensuring that appropriate consultation takes place before such instruments are presented to the Houses.

Baroness Noakes: As I anticipated, the Government are relying on the Cabinet Office and, indeed, better regulation guidelines that there should be consultation. That may well deal with the second of the two amendments that I have tabled. Amendment 22, which refers specifically to the Banking Liaison Panel, is an important issue. We have hard-wired that body into the Bill, which is an unusual but welcome process, but have given it rather narrow terms of reference. The issue is not about the current drafts but the future.
	It is unfortunate if the Government are seeking to narrow the ongoing scope of the Banking Liaison Panel because the expert liaison group has been used in a much broader way. That is why the comment has been made to us that wider powers are required for the Banking Liaison Panel. A later amendment deals with that specific aspect, so I shall not pursue the issue today. I am not sure that we have entirely given the right role to the Banking Liaison Panel, and it would be a comfort to those involved in the financial services industry to see it with a better role, and a good thing for the Treasury to have people involved who are outside the magic circle of the tripartite authorities in the future development of codes. As I said, I shall not pursue that today but I do not preclude returning to it later. I beg leave to withdraw the amendment.
	Amendment 22 withdrawn.
	Amendment 23 not moved.
	Amendment 24
	 Moved by Baroness Noakes
	24: Clause 6, page 4, line 19, at end insert—
	"( ) The code shall not come into force unless an order containing a draft of the code has been laid before, and approved by a resolution of, each House of Parliament."

Baroness Noakes: This amendment concerns the parliamentary process for the code of practice. As Clauses 5 and 6 are currently drafted the Treasury issues the code of practice after the minimal consultation set out in Clause 6. There is no requirement for more general consultation because the Government rejected the amendments in the previous group, nor is there any role for Parliament. That is what Amendment 24 focuses on; it requires a draft code to be approved by each House before it comes into force.
	It is perfectly normal for statutory codes to be approved by Parliament; this is not an innovative procedure. When the amendment was debated in another place, the Minister said that the FSA's handbook was not approved by Parliament so it was not necessary for the code to be approved. I believe that the Government have chosen not to understand the difference between the FSA's handbook and the related powers in the Financial Services and Markets Act and this Bill and its code. The FSMA inter alia sets out the basis on which regulated activities can be undertaken and gives the FSA the related powers, and the handbook sets out how the FSA will use those powers. On the other hand this Bill gives relevant authorities some sweeping and intrusive powers that go way beyond anything that we found in the FSMA. It is one thing to say how a regulatory body will apply its regulatory constraints but quite another to say how public bodies will use powers to grab property that belongs to other people. That is why we believe that it is important that Parliament is involved in all stages of the implementation of this Bill, including the extremely important code of practice, which will be the main route of communication between the relevant authorities and the businesses that could be subject to the powers in the Bill.
	In addition, as a purely practical matter, the FSA's handbook was reputed at one stage to have reached nine feet had it been printed out in total. That did not reflect particularly well on the FSA but for present purposes tends to indicate a level of detail with which Parliament ought not to get involved. The code of practice, a draft of which we have seen, is commendably short and very amenable to parliamentary scrutiny.
	The Government have produced their helpful draft code, but it is already clear from the November consultation that significant new elements will be added to it before it is finalised. It is important that the whole code is subject to proper scrutiny, and it is difficult to see how that can be achieved without proper parliamentary process. Furthermore, it is important to remember that the code can be revised and reissued whenever the Treasury chooses by virtue of Clause 6(3)—I have no problem with that power—so, over time, a very different code might emerge. It cannot be right for Parliament to play no part in that.

Lord Higgins: On the previous amendment, the Minister referred to the code of practice of the Cabinet Office in relation to statutory instruments. I do not see why we should be bound by that when it is important that it should be obligatory for the Government to carry out widespread consultation in regard to these matters. In any case, we are not considering the code as a statutory instrument. My noble friend's amendment makes it a statutory instrument. Clause 6 makes no provision for Parliament to have a role in or to comment on the code of practice. It will be laid before Parliament but—the Minister will correct me if I am wrong—there is no provision for Parliament to debate it. Still less is there provision for it to be compulsory for Parliament to have a chance to debate it. That being so, there is a great deal to be said for the amendment.

Lord Stewartby: This code of practice is very important and is subject to substantial, or even complete, rewriting without any obvious input from consultation or Parliament. I hope that the Government will look again at this. Amendment 24 suggests that a positive resolution of each House of Parliament should be built into the Bill. If that is not done, the code, which governs in large measure how the Bill is going to be put into practice, will not get the scrutiny that it needs and deserves.

Viscount Eccles: One of the problems with the code is that it raises a lot of controversial issues and does not have any clear direction. For example, paragraph 92 was cited earlier. It applies to banks in temporary public ownership and states:
	"Immediately following the transfer of securities"—
	that means that the bank is 100 per cent in public ownership—
	"and for the period of stabilisation, the Treasury may take a 'hands on' role in managing the affairs of the bank. However, once stabilised, the Treasury shall seek to introduce corporate governance arrangements in line with best practice as soon as is reasonably practicable. The nature of these arrangements will depend on how likely the bank is to remain in public ownership".
	We could probably have an exciting two-hour debate on what that paragraph means in certain circumstances. My noble friend's proposal that this code of practice should be subject to parliamentary scrutiny and debate has got to be right.

Lord Davies of Oldham: I would be the last person to deny the opportunity for the noble Viscount, Lord Eccles, to participate in an exciting debate and I assure him that he will get that opportunity. The code will be laid before Parliament and those who are excited by it and want to organise a debate on it either in the other place or here will be more than entitled to do so. The issue is whether it should be mandatory that it be laid before the House.
	First, let us be grateful for the progress represented by the code under the Bill. I look around me and see enough noble Lords present who have sat through the passage of Bills during which they have bemoaned the fact that a code of practice or conduct will be involved when they have not seen sight nor sound of the code because it has not been drafted until after the legislation has been produced—sometimes a considerable time after. Constant have been the complaints about the process that that situation has created.
	Here we have the noble Baroness freely congratulating the Government on the fact that considerable progress has been made on the draft code in both the consultation that led up to it and the draft code itself. We have had the benefit of that in informing debate on the Bill. We also intend the code to be published very soon after the Bill becomes an Act and for it to be laid before Parliament in order to provide opportunities of which Parliament may want to take advantage. That seems to indicate that the Government have taken the issue of consultation on the code and its importance in an exemplary way. I was rather hoping for plaudits from the opposition Benches, rather than criticism of the process.
	I understand the enormous advantages of secondary legislation by affirmative resolution. We all know that if every call on every piece of legislation was incorporated in Bills, Parliament would be submerged by those instruments which often—even when they are affirmative and therefore have extra status and significance attached to them because the Government are obliged to lay them—give rise to limited debates with limited participants, even on the most significant issues.

Baroness Noakes: I will make the Minister an offer. How about the negative procedure?

Lord Davies of Oldham: I will not hear any offer proffered from the opposition Front Benches without saying that I will consider it very seriously, because no doubt it is presented in that constructive pose that we all welcome. That is not what the amendment states. It states: approved by a resolution of the House. The noble Baroness is such a stickler for the precise terms of legislation that she will know that I will be a stickler for the precise terms of the amendment, and I therefore hope that she will withdraw it.

Baroness Noakes: The Minister's response surprised me not at all. I was grateful for the support from my noble friends for the need for parliamentary process. He wanted more praise for the draft being available. I have already given him as much praise as I am ever likely to give him on that subject. It is asking a lot to ask for even more praise. The most important thing is that the Bill says only that it will be laid before Parliament, which initiates no process of any recognisable substance whatever. The only thing that would lead to any recognisable process would be the requirement for either the affirmative or the negative procedure. The Minister may tempt me to return at the next stage with at least the negative procedure, which it would be churlish of the Government to refuse because it is churlish of them to disregard the need for parliamentary involvement. However, I will think about that further, and I beg leave to withdraw the amendment.
	Amendment 24 withdrawn.
	Clause 6 agreed.
	Clause 7 : General conditions
	Amendment 25
	 Moved by Baroness Noakes
	25: Clause 7, page 4, line 28, leave out "not reasonably likely" and insert "highly unlikely"

Baroness Noakes: Amendment 25 would amend Clause 7(3), which contains the second condition that must be met before the FSA can fire the starting gun that will allow the stabilisation powers to be exercised. This is one of the more important amendments that we shall consider today and one about which the banking industry feels strongly.
	Condition 1, which is set out in subsection (2), is that the bank is failing or likely to fail the threshold conditions—we alluded to that in earlier amendments—but condition 2, which, as I said, is set out in subsection (3), is as follows:
	"Condition 2 is that having regard to timing and other relevant circumstances it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the bank that will enable the bank to satisfy the threshold conditions".
	Amendment 25, to which I am glad to see the noble Lords, Lord Newby and Lord Oakeshott, have added their names, would change "not reasonably likely" to "highly unlikely". It would thus make the FSA's judgment based on positively rejecting whatever plans a bank has in place to meet its threshold conditions rather than simply saying that it is not convinced by them. There is a world of difference between these two tests and the evidence that will need to be amassed to deal with them.
	Let me give an example: a three-horse race. Assuming perfect betting markets, the odds are 5:2 on for horse A, 3:1 for horse B, and 25:1 for horse C. It is highly unlikely that horse C will win. It is also not reasonably likely. It is not impossible, but with two much higher rated horses in the race, horse C would be both not reasonably likely and highly unlikely to win. I was in that position this afternoon with a horse that was at 25:1 and duly did not win.
	It is highly likely that horse A will win; that is where the money is. It is not reasonably likely that horse B will win, given the form of and betting support for horse A, but it is certainly not highly unlikely that it would win, as it has a 3:1 chance, which is relatively short odds. Under these rules, horses B and C would both be taken off to the FSA's knackers' yard, while only horse A would survive for another day. If we changed the test, as in my amendment, only horse C would fail.
	The powers in the Bill are, as we have said, very extensive and should not be capable of being triggered lightly. The hurdle which the Bill sets must be sufficiently high to ensure that banks that are capable of getting their houses in order and meeting the threshold conditions must be given that opportunity. There are no appeal provisions in the Bill and no provision for challenging the tripartite authorities' actions other than judicial review, which is not a serious mainstream option when dealing with the kinds of powers in the Bill, which, inter alia, can alter contractual rights and deprive owners of their property. There is also no parliamentary process to act as a counterweight. That is why the nature of the test is particularly important. It is important to the current providers of capital to banks and to any future providers of capital.
	If we set up a regime that makes it too easy for the state in its various guises to disrupt a banking business, that will make the UK a less attractive place for banking businesses to make their home. As the cost of capital may rise for UK banks, we may lose our appeal as a good location for global capital, which of course owes no country allegiance. For an economy that has been heavily dependent on financial services that is not a good thing.
	I asked the Minister to reflect on the unintended consequences of Sarbanes-Oxley, about which I spoke at Second Reading. I urge him not simply to read out his speaking note which will tell him to resist this amendment. I ask him in particular to consider the ramifications of this condition 2 test and whether it is a proper test in all the circumstances. I beg to move.

Lord Higgins: In any legislation of this complexity one always reaches a point where one believes that the parliamentary draftsman has had a nervous breakdown. Any draftsman who comes up with the expression,
	"is not reasonably likely ... (ignoring the stabilisation powers)"
	has probably reached that point. Clearly that expression, and the one put forward by my noble friend, seeks to assess in some way the probability that something is going to happen. While I do not suggest that we should write odds into the Bill as my noble friend seemed to suggest, it might be helpful to have from the Minister a view on what he thinks the odds are on the expression "not reasonably likely" as against the odds for the expression in my noble friend's amendment. We will not be writing into the Bill the travaux préparatoires of our discussions, but should the matter be disputed it will provide some evidence for the court about what the Government's view really was. These two expressions are so vague as to require some clarification.
	It is very much a matter of timing. Correctly, the clause says that timing needs to be considered. However, as we know from the circumstances of the Northern Rock affair and questions about whether it might be rescued by this or that party, a situation can be extremely fluid at that point. As my noble friend said, this is an important part of the Bill as regards whether the trigger should be pulled. I hope we can have some indication of what the Government think this expression means. Alternatively, my noble friend's expression seems a rather better indication of the probabilities of action being justified and taken.

Lord Newby: Given the reluctance with which the Government have exercised the powers under the banking special provisions legislation, it might be thought that a debate about this kind of wording was completely unnecessary because the Government have consistently and obviously tried to avoid having to get involved in dealing with banks if they possibly can. They have reluctantly got involved because they have been persuaded that the banks were going to collapse and there was systemic risk. So why are we arguing about two forms of words, either of which one could spend quite a long time deconstructing? I am sure that you could end up proving that they both mean exactly the same.
	As we discussed earlier, and as the Government accepted, language matters. When we had the debate about whether the word "temporary" should be in the Bill, there was a consensus—although there was a difference about what "temporary" might mean—that the reason it was there was that the Government and everyone wanted anyone reading the Bill, whether from this country or outside it, to realise that public ownership was not seen as a course of early resort or something that anyone across the parties wished to see as a positive object of public policy, but that it was being forced on the state and would be remitted as soon as possible.
	Therefore, taking that analogy, there is a good argument for having the words "highly unlikely" in the Bill rather than the words "not reasonably likely", just because to any reasonable person it sets a higher bar. I suppose it could be said that if we decided to define "not reasonably likely" as being that no reasonable person would think it likely, it is not all that different from "highly unlikely". But that is not the way it will be seen by most people who read the Bill and is not the impression the Bill makes. Given that, I am sure that the Government will accept that the term means "highly unlikely" in layman's language, so the logical thing is to use it in the Bill and be done with it.

Lord Myners: The noble Baroness has added yet another talent to the many she has and will thus increase the admiration of the House. We will now be able to discuss betting odds with her, and I am sure that the book she would have run would have been profitable regardless of the outcome of the race. Clause 7 requires two general conditions to be met before the stabilisation powers can be exercised. The purpose of the clause is to make it absolutely clear that the authorities will not, and indeed cannot, use the stabilisation powers until it is clear both that a bank is failing and that voluntary and regulatory action is no longer appropriate to resolve it. To that end, the Bill requires the FSA to be satisfied that two conditions have been met before the stabilisation powers can be exercised. These conditions are that a bank is failing or likely to fail its regulatory threshold conditions as provided under the Financial Services and Markets Act 2000, and that having regard to timing and other relevant circumstances, it is not reasonably likely that, ignoring the stabilisation powers, action will be taken by or in respect of the bank that will enable it to satisfy the threshold conditions.
	The conditions are designed to ensure that a bank is put into the SRR only when it is appropriate to do so, and I believe that, taken together, these two conditions achieve that, requiring as they do both a decision on the current situation of a bank with regard to quantitative and qualitative conditions, and a further decision that a turnaround is unlikely. However, I should point out that these conditions are designed to ensure that the SRR powers can be exercised before a bank has entered insolvency. One of the reasons for this, as I discussed when debating an earlier amendment, is to preserve whatever residual value there may be in a failing bank. Acting at this stage therefore increases the chance of a private sector solution or a swift resolution through a bridge bank. I hesitate to suggest to the noble Lord, Lord Newby, that there may be an inconsistency in supporting this amendment with his earlier view in connection with enterprise value; that is, the earlier amendment might have tilted one in the direction of holding off an intervention and going into resolution in the hope that this might protect enterprise value, whereas the risk—if there is one—in the wording here is that it may encourage the authorities to move a little earlier.
	The noble Lord, Lord Higgins, asked about the definition. As the noble Lord, Lord Newby, pointed out, language matters in this respect as it did earlier in connection with our discussion of the term "temporary". The noble Lord, Lord Higgins, has reminded me of the importance of what Ministers say in debates in that the courts may come to rely on it in some respects. So with some trepidation I shall say that the authorities, having regard to their experience and their judgment of the circumstances, would reason that the balance of probabilities is that a bank would not be able to satisfy the threshold conditions. This would be a conclusion based on experience and their knowledge of the circumstances. It is a matter of judgment.

Lord Higgins: Am I wrong in thinking that the expression the Minister used—"balance of probability"— effectively implies "more likely than not"?

Lord Myners: It would be unwise for me to go further in that regard. Should it ever become necessary for the courts to give that degree of precision, the word "reasonably" would certainly take one in the direction in which the noble Lord is encouraging me to go—but I would rather not go any further than I have. Given that a test of reasonable likelihood for the second test provides the right level of reassurance to interested parties that voluntary or regulatory action can no longer be relied upon to resolve matters, while increasing the prospect of a substantial resolution, I therefore hope that this explanation will be sufficient to induce the noble Baroness to withdraw her amendment.

Lord Newby: The Minister has demonstrated the point that I made at the beginning of my intervention. His definition of "reasonably" is not the common person's definition. The common definition of "reasonably" is that it is reasonable—it is moderately likely. It is not that "by using one's reason one can come to only one conclusion". That strengthens the argument for this amendment.

Baroness Noakes: I thank the noble Lord, Lord Newby, and my noble friend Lord Higgins for taking part in this important debate. The Minister will have gathered that we are not entirely convinced by what he is saying. There is an issue of what is meant by the phrase that is found in Clause 7 and the Minister has given some elucidation. That elucidation has taken us towards it being something like a balance of probability, but without him positively confirming that. The question is whether that is the right approach, or whether we should leave it completely vague and hope it will never be tested in the courts.
	The problem that I think lies behind the Minister's attitude is that the judgment is all for the authorities—that nanny knows best. The authorities would be taking their view on whether they should accept whatever plans were being put forward for recovery for the bank or whether they should pull the trigger, take the bank away from its owners and split it up, sell it on or do whatever. Our position is that the authorities need to be very sure before they get to that position, not just on the balance of probabilities, 50:50 or something similar, which is far too low a test.
	That is why bodies such as the BBA and LIBA have consistently said to us that they are extremely unhappy with this test. Of course everyone is unhappy with the lack of articulation about precisely what the test means, but in addition the problem is that it is seen as a judgment that will be made in a way that will be harmful to the owners of the business. That is what people fear. There are those who will talk about the problem of the FSA, and indeed the authorities generally, becoming trigger-happy if this legislation goes through. I hope that will not be the case, but this particular formulation leads one to believe that it would be easy for the FSA to become trigger-happy in the context of this legislation.

Lord Myners: The noble Baroness makes her points very well, as have other noble Lords. If she withdraws her amendment, I will go away and carefully reflect on this and see if we can find a form of words that will be satisfactory to the whole House on Report.

Baroness Noakes: I must learn to fight back more often. With such a gracious offer from the Minister I am of course prepared to withdraw my amendment. He has said more than I could have hoped for, and I am grateful to him. I am sure that those outside this Chamber will be anxious to engage in discussions with the Treasury on that, as will I and, I am sure, the Liberal Democrat Benches. I beg leave to withdraw the amendment.
	Amendment 25 withdrawn.
	Amendment 26
	 Moved by Baroness Noakes
	26: Clause 7, page 4, line 31, leave out subsection (4)

Baroness Noakes: Let us see if I have a continuing run of luck, although I think that the odds are strongly against it. In moving Amendment 26, I shall speak to Amendment 27 as well. Both amendments concern Clause 7(4).
	Subsection (4) requires the FSA to treat conditions 1 and 2 as met if they would be met but for the financial assistance provided by the Treasury or the Bank of England. In the latter case, this disregards ordinary market assistance offered by the Bank on its usual terms. Amendment 26 would amend subsection (4) so that the FSA can substitute its own judgment about the role of financial assistance. For example, a bank may currently need financial assistance and may even need a small amount of financial assistance to supplement a bank recapitalisation package being put in place. The current drafting of subsection (4) would compel the FSA to say that both conditions 1 and 2 were met because it had to ignore the financial assistance which had been provided to date and was needed in future, even if that was of a relatively small, possibly even a de minimis, amount. The FSA might otherwise be satisfied that the best solution would be for the bank to proceed on this basis but could not arrive at a sensible judgment if it were forced to take a particular view of financial assistance. What public purpose is served by eliminating the FSA's judgment in such a situation?
	Amendment 27 deletes subsection (4), largely on the same grounds—namely, that there should be no compulsory judgment forced on the FSA. If that case is accepted, there is no need for subsection (4) because condition 2 allows the FSA to take account of all "other relevant circumstances", a term which is so wide as to encompass anything that is important in the matter. My point is that the FSA should not be required to take the stance set out in subsection (4), in which case we would not need subsection (4) because subsection (3) is perfectly wide enough. I beg to move.

Viscount Eccles: Would loan guarantees count as financial assistance? If so, we are moving into a period when there will not be a bank that is not open to having some loan guarantees on its book.

Lord Myners: The noble Viscount, Lord Eccles, raises a question which I shall deal with in a moment. Amendments 26 and 27 make changes to the subsection of Clause 7 that refers to the requirement for the FSA to disregard financial assistance provided to the bank by the Treasury or the Bank of England in determining whether the bank meets the general conditions. I believe that this requirement is essential to protect taxpayers.
	As members of the Committee will know, one of the objectives of the SRR is to protect public funds. This subsection is important in a situation in which public funds have been invested in a failing bank. In such cases, the bank could be technically meeting its threshold conditions, purely and entirely due to financial support that has been provided to the firm by the Treasury on an exceptional basis. To protect such funds invested in the bank in such circumstances in line with the objectives of the SRR, it is right that the Bank of England and the Treasury have the ability to take action in relation to the failing bank through the SRR measures, subject, of course, to the specific conditions also being met.
	However, in the circumstances that I have just described, this could not happen without the provisions contained in this subsection. The bank would technically be meeting its threshold conditions and, therefore, the general condition in Clause 7 could not be met.
	I reassure noble Lords that it is not out intention to treat all such assistance in this way, which I hope answers the point raised by the noble Viscount, Lord Eccles. We recognise that it may not be appropriate in some cases to require the FSA to disregard the provision of financial assistance. Clause 7(4) does not therefore apply to ordinary market assistance provided by the Bank of England. The Government consider that such assistance should not necessarily be disregarded by the FSA.
	Clause 247 allows the Treasury by order to specify which activities or transactions are to be treated as financial assistance in the Bill, including in this subsection of Clause 7. This will allow the Treasury to provide that other forms of financial assistance should not necessarily be disregarded by the FSA. The power gives us the flexibility to ensure that the FSA is required only to disregard financial assistance in appropriate cases. I hope that this reassures noble Lords if their concern was that all forms of financial assistance would have to be disregarded by the FSA in making its determination on the general conditions. I can quite see how that could create a disincentive for banks to participate in financial assistance schemes available to the general market, which is why the Bill provides flexibility on this point.
	I address the second of the amendments on this matter, which would have the effect that, even if subsection (4) were not omitted completely, the FSA would have discretion as to whether financial assistance should be disregarded for the purposes of meeting the general conditions in Clause 7. Again, if the amendment is aimed at the concern that I outlined earlier, the approach that I have set out better meets it. In particular, I believe that it is for Ministers to determine what forms of transactions are treated as financial assistance for the purpose of the Bill and, in this case, what form should be disregarded so as to make best use of taxpayers' funds. This approach also gives greater certainty to the market. Market participants will know whether a particular form of assistance is to be disregarded by the FSA in considering whether the general conditions are met. I hope that my explanation has been helpful and has reassured noble Lords. I therefore beg the noble Baroness, Lady Noakes, not to press her amendments.

Viscount Eccles: Clause 247 is dependent on the Treasury laying an order subject to negative resolution and there is a consultation period. Would an unexpected event which needed a rapid response give proper time for Clause 247 to be triggered in order to exclude it from "shall" in Clause 7(4), applying to the FSA?

Lord Myners: I am advised that the authorities and those who would be involved in implementing and making judgments do not believe that that would be a problem.

Baroness Noakes: I apologise to the Minister for being slightly more preoccupied with what our "target amendment" on the grouping list, which is about to finish, meant, so I did not concentrate entirely on what the Minister said, although I gathered that he was not going to accept my amendment. I think that I can understand part of the reason, but I am not entirely convinced that all of what he said was correct. In particular, he did not take the point that the FSA should have some judgment—I think that some other people have some judgment, but not the FSA, in respect of this matter. I shall read carefully in Hansard what the Minister said before deciding whether I wish to return to the matter at a later stage. For this evening, I beg leave to withdraw the amendment.
	Amendment 26 withdrawn.
	Amendments 27 and 28 not moved.
	Clause 7 agreed.
	Amendment 29
	 Moved by Lord Howard of Rising
	29: After Clause 7, insert the following new Clause—
	"Report on use of stabilisation power
	(1) On the exercise of stabilisation powers, the Treasury must lay before Parliament a report setting out—
	(a) the reason for the exercise by the FSA of its powers under section 7,
	(b) the steps taken by the FSA, if any, to avoid the use of the stabilisation powers, and
	(c) how the Treasury or the Bank of England then exercised their stabilisation powers to achieve the special resolution regime objectives.
	(2) Where the Treasury believes the disclosure of certain information in the report in subsection (1) would adversely affect the achievement of the special resolution regime objectives, that information may be withheld from publication for up to six months from the date on which the stabilisation powers were exercised, but must be published at the expiration of that period."

Lord Howard of Rising: This amendment seeks to ensure that Parliament is kept informed about two things—the use of the stabilisation powers and that they have not been unnecessarily used. This will be achieved as set out in the amendment by asking the FSA why it used the stabilisation powers and what steps it took to avoid taking such draconian action, and by asking the Treasury how it used the stabilisation powers to achieve the objectives of the special resolution regime.
	The stabilisation powers give authorities great and very wide powers, including discretion to change priorities at will. It is only right that, having such powers, there should be transparency as to how they are used. For reasons of stability, it may be necessary to be opaque for a period of time; this is reflected in subsection (2) of the amendment, which allows for a delay of six months before information has to be disclosed. However, to allow powers in this legislation to be used in total obscurity would be quite wrong and would, over time, create the temptation to be freer with the power than might be desirable, if not the temptation actually to abuse the power.
	The code of practice gives guidance but, without being told how and why the powers have been used, it would not be possible to make a judgment on what has taken place or how effective the code has been. This Government have made much of the need for transparency, and it is more important than ever that there is transparency when such wide powers as this Bill is seeking are used. Seeing how the powers have been used will give insight into how the authorities have used the powers that they have been given and their way of thinking, as well as providing valuable lessons on how powers may be used in the future.

Lord Newby: This amendment raises the tricky question of what the Government say when they are exercising this regime, and when they say it. When we discussed the Banking (Special Provisions) Bill, we agreed that the negative resolution procedure was a sensible way in which to go forward, because we foresaw—as was the case with Northern Rock—the need to move quickly at times. Also, it was easier to deal with an issue when Parliament was not sitting. In practice what we had, which none of us envisaged at the time, was a second use of the legislation in the case of Bradford & Bingley. There was a general view that on the annulment procedure, despite the noble Lord's attempts to get a debate on it—which we had—we did not get a sensible explanation of why the Government had acted quite in the way they had, and they were not geared up to provide one.
	This amendment is a way of squaring the circle. It enables the Government to take action quickly, when they feel it is necessary—or enables the tripartite authority to take action quickly when it feels it is necessary—without significant prior parliamentary debate. Equally, after the event, it gives Parliament and the nation a substantial and explanation for what has been done.
	The Government may want to tinker with the precise form in which the procedure is set out in the amendment, but the principles that the amendment embodies are extremely sensible—and are, frankly, to the benefit of the Government, who are given an opportunity to explain formally what they have done and why they have done it.

Lord Myners: Amendment No. 29 would require the Treasury to lay a report before Parliament addressing various aspects of the use of the stabilisation options. While I agree that it is important to provide information to Parliament and public over such actions, let me set out why I believe that the amendment is not necessary.
	Following the recent resolutions under the Banking (Special Provisions) Act, the Chancellor made a Statement to Parliament on his actions. It included the reason for the action and the steps taken to resolve the failing banks. These statements were also accompanied by a press notice from the Treasury website. I would be the first to acknowledge that they did not go as far as the noble Viscount, Lord Eccles, would have wished. Nevertheless, I think that they provided good and proper explanation as to why actions have been taken.
	Therefore, I believe that in each case to date the authorities have demonstrated the appropriate level of transparency, and that Parliament has had sufficient power to call the authorities to account for their actions. We touched on that issue earlier in Committee.
	However, I accept that some further reassurance is needed that this and future Administrations will continue to provide sufficient information to Parliament on their actions. For that reason, the code of practice will place an obligation on the Treasury or the Bank of England to provide a public statement on why the specific conditions for the use of stabilisation options were determined to have been met.
	As noble Lords will know, the authorities must have regard to the code of practice. This approach is appropriate as it allows the lead authority in any resolution to provide a public explanation of its actions. The code notes, as does the proposed new clause in Amendment 29, that it will not be possible to divulge certain information—for example, the release of information that could threaten stability or confidence in the banking system. It again demonstrates our commitment to transparency on these matters.
	This is all in addition to the fact that Parliament can call a debate or request information on any action of the authorities under the SRR at any time. Therefore, I believe that there are sufficient mechanisms to call Ministers and the other authorities to account over their actions.
	The proposed new clause makes two specific proposals with regard to the action of the FSA. I should like to address these points directly. The proposed new clause requires that any report should include, in particular, information from the FSA on how they concluded that conditions in Clause 7 were met and what regulatory actions were taken to avoid the use of the SRR. Again, I do not believe that such a report should be needed. In addition to the statements made by the Chancellor, the FSA has published information on its actions with regard to recent resolution when it has used the variation of permission powers under the Financial Services and Markets Act 2000. For example, the FSA has published statements on its actions with regard to Heritable and London Scottish. In these statements, the FSA provided detail of the powers used under the FSMA and its reasons for action. This shows that the FSA produces relevant information on the use of its regulatory powers, and, of course, it can be called to the Treasury Select Committee at any time to explain its actions further, should that be necessary.
	Further, under paragraph 10(1) of Schedule 1 to the FSMA, the FSA is required to produce an annual report, which the Treasury can direct to include certain information should it think that is necessary. Again, I believe that there are already a number of mechanisms for the FSA to produce information on the use of its powers and for Parliament to question and to call to account the actions taken.
	Before concluding, I should like to point out that I am not comfortable with one phrase in the new clause. The new clause, if accepted, would require any report to include information on action taken by the FSA to avoid the use of the SRR. Let me be clear, the FSA takes action to meet its requirements under the Financial Services and Markets Act 2000 and the objectives contained within that Act. It does not take action to avoid the use of powers under another piece of legislation, and it would therefore not be appropriate for the FSA to provide information in such a manner. Further, this phrase focuses to an inappropriate degree on the role of the regulator rather than that of the bank itself. As I said earlier, if a bank fails, the primary responsibility must lie with the bank's management, not the authorities, a point with which I think the noble Lord, Lord Newby, is in considerable agreement.
	I understand that information provided by the authorities to Parliament would naturally focus on the conduct of the authorities themselves. If accepted, however, the proposed new clause would convey the wrong impression about the role of the FSA and ignore the role of the failing bank itself. For this reason, with the greatest respect, I cannot agree with the amendment. I hope that I have provided reassurances to the Committee that Parliament has many ways to call the authorities to account, and that recent actions by the Chancellor and the FSA have shown their willingness to share information on these important matters. I also hope that I have demonstrated my concerns with one of the provisions of the proposed new clause and its treatment of the role of the FSA prior to the SRR. For this reason, I urge the noble Baroness to withdraw the amendment.

Baroness Noakes: You're not a Baroness, are you?

Lord Howard of Rising: Well, I was rather looking forward to the sex change; I have never tried it. The Minister has floored me.

Lord Myners: I hope that it will help the noble Lord to regain his compos8ure if I express my apologies.

Lord Howard of Rising: The Minister should not worry about it.
	The FSA may have published information in the past but that is no guarantee that it will do so in the future. I am sure that it will, but if there is a requirement for it to do so that will be absolutely certain. There is also a question of the quantity of information that the FSA makes available. I have not seen the documents to which the Minister has referred, so I cannot make a judgment on that, but I would certainly like to look at them and see if the sort of reports the FSA is making would be of use.
	I am not sure that the Minister is correct in saying that the FSA is unable to take steps to avoid the special resolution regime having to be implemented. If it cannot take those steps, why on earth is it involved? Presumably one of its regulatory roles is to try to implement conditions to avoid this sort of thing happening. Anyway, when I have fully recovered from being a Baroness, I shall look at Hansard and consider the Minister's remarks carefully. In the mean time, I beg leave to withdraw the amendment.
	Amendment 29 withdrawn.
	Clause 8 agreed.
	Clause 9 : Specific conditions: temporary public ownership
	Amendment 30
	 Moved by Baroness Noakes
	30: Clause 9, page 5, line 35, after "that" insert—
	(a) neither of the other stabilisation options is appropriate or practical, and
	(b) "

Baroness Noakes: The amendment deals with the powers of the Treasury to take a bank into temporary public ownership. It will be well known that my party does not much like the public ownership option, whether or not it carries the tag "temporary". Although, as I have already said today, we accept that it may be necessary in some circumstances and is an appropriate power to be contained in this Bill, we believe that temporary public ownership should be a last resort. In that we are at one with the Government.
	The Government's January 2008 White Paper contained only two paragraphs on temporary public ownership, but made it clear that it was a last-resort option. The July White Paper did not make quite that distinction. However, in Committee in another place, the Minister, Mr Ian Pearson, was very clear. He said:
	"The temporary public ownership tool should be seen very much as one of last resort".
	As I have indicated, we agree with that but the Bill does not say it. The Minister went on to say that,
	"it is not appropriate to use the term 'last resort' in the Bill".—[Official Report, Commons, Banking Bill Committee, 6/11/08; cols. 355, 361.]
	We agree with that also. My amendment does not use the term "last resort" but seeks to achieve the same effect. The Minister in another place argued that the nature of the conditions in Clause 9 was higher than those in Clause 8 and that made it automatically a weapon of last resort. It is true that the hurdles for using Clause 9 are higher than those for Clause 8, but that does not convert temporary public ownership into a last resort. If the Clause 9 conditions were fulfilled, the Treasury could move directly to temporary public ownership even if the Bank was of the opinion that a private sector purchaser or a bridge bank was a viable solution. Hence my amendment requires the Treasury to satisfy itself that neither of the other stabilisation options is appropriate or practical before considering whether conditions 1 or 2 in Clause 9 are met. This genuinely would turn temporary public ownership into a last resort option. I beg to move.

Lord Higgins: I can see why my noble friend feels the inclusion of "last resort" in the Bill is not desirable since it savours of absolute desperation should the clause be put into operation. However, her amendment, which would suggest that the measure would be resorted to only if the other two options had failed or were not appropriate, seems a sensible thing to include in the Bill. It would make the situation clearer and seems to have no great disadvantage. I am a little puzzled by subsection (3), which seems to suggest that temporary public ownership would be considered only after the Treasury had provided financial assistance. I am not clear how that gels with the order in which these actions should be taken. But presumably, if one had failed on the first two possibilities, and assistance had already been provided, it would not be inappropriate to go all the way in terms of public ownership, unfortunate though that may be.

Viscount Eccles: I am not sure that we are being entirely realistic about temporary public ownership. If we go by experience, we have the examples of Northern Rock and Bradford & Bingley, and those stories are not yet played out. But as I think the noble Lord, Lord Turnbull, said earlier, there are many ways in which these matters can turn out. In the case of Bradford & Bingley, it seems likely as a business judgment—we seem very much caught up with people such as the FSA or whoever having to make judgments in these varying circumstances—that the run-off of the mortgage book will leave nothing to go back into the private sector except possibly a bundle of assets which would probably be sold off at a rather speculative price. Indeed, in the case of Northern Rock, it seems quite possible, although not so likely, that something similar will happen. Although we have debated the word "temporary" we have nevertheless not really faced up to whether this is a matter of last resort, even if it is not so expressed in the Bill. When we say temporary public ownership, are we not actually looking at circumstances in which there is no realistic private sector recovery?

Lord Davies of Oldham: Not for the first time the noble Viscount, Lord Eccles, has brought us down with a bump to the reality of the situation. In our consideration of the legislation there is a danger that we might forget the dire, crisis circumstances we are seeking to tackle. We need to consider carefully the nature of the problem facing the authorities.
	I understand the concerns expressed by those noble Lords who supported the amendment, but I do not think that it is necessary. The specific conditions for the temporary public ownership stabilisation option set out a different test which must be met, as compared to those for transfer to a private sector purchaser or bridge bank. Clause 9 is very different from Clause 8 and envisages very different circumstances.
	The Bank of England can use either the private sector purchaser or the bridge bank stabilisation options, where it is satisfied that this is necessary to protect depositors, financial stability or confidence in the banking system.
	The Treasury can take a bank into temporary public ownership only if it believes that it is necessary to resolve or reduce a serious threat to financial stability or where it has provided financial assistance to the bank for the purpose of resolving or reducing a serious threat to financial stability. These are different and more restrictive conditions than those faced by the Bank of England. For example, the Bank of England could transfer all or part of a bank to a private sector purchaser if it believed that it was necessary to protect the bank's depositors, even if it believed that the failure was not a direct risk to financial stability. The Treasury cannot take a failing bank into temporary public ownership for such a reason.
	The purpose behind the amendment is already met in the Bill. The code of practice is helpful in this regard, as it provides additional information on the considerations that take place in choosing between the tools that are employed.
	As was discussed earlier at some length, we have consulted on a draft code of practice. We therefore know the framework within which the authorities will operate. The noble Lord, Lord Higgins, asked whether temporary public ownership occurred only after public financial assistance. It is not the case that temporary public ownership can be used only where the Treasury has provided public funds. That is one of the conditions, but not the only one. Conditions A and B are alternatives.
	I hope that I have established that we have thought through the issues. Very different circumstances obtain when the Treasury moves into action from those for the Bank of England. That is clearly spelt out. Clause 9 is very different from Clause 8. I hope that the noble Baroness will feel that we have in place a position to which her amendment would not add anything of significance. I hope that she will feel able to withdraw the amendment.

Baroness Noakes: Let me put a simple question to the Minister. If the FSA has satisfied itself that the stabilisation powers can be exercised because conditions 1 and 2 have been met under Clause 7, there is not then a sequential run through Clauses 8 and 9. It is the case, is it not, that either Clause 8 or Clause 9 could be used, or both could be used? That is, the circumstances could be such that both conditions A or B were satisfied in relation to Clause 9 and the conditions set out in Clause 8 could be met. If it were the case that the bank thought that it could find a private sector purchaser, or through a bridge bank arrangement could transfer on the bank in one or more parts, it could be trumped by the Treasury taking a bank into public ownership.
	My point is that the Bill does not make temporary public ownership a last resort, which is what the Minister and his honourable friend in another place were trying to suggest, because of the nature of the tests. The Minister in another place said that it was a test of last resort, but that is clearly not the case in the statute. Can the Minister confirm that if the Clause 7 conditions are met, the Treasury can operate temporary public ownership, even if the Bank could, in the same circumstances, produce either a private sector purchaser or a bridge bank?

Lord Higgins: Perhaps I may add to that, because I am looking more carefully at Clause 9. Is the effect of condition B that the bank could be taken into public ownership only if the Treasury had provided financial assistance already?

Lord Davies of Oldham: The point that I wanted to make to the noble Lord was that that was only one of the conditions. It certainly could occur if financial assistance had already been provided, but that is only one of the conditions. We are debating the more substantial issue that the noble Baroness is pressing me on, which is whether the Treasury is carrying out a temporary nationalisation as a last resort. It is a last resort in the sense that although the FSA can act within a limited framework, the Treasury can only act if the nature of the crisis is such that it sees a threat to the financial system. Consequently, we are seeking to identify that question of last resort, because we are looking at a more serious circumstance than might have been the case when the FSA has acted in more limited circumstances.
	I hope that the noble Baroness will recognise that the way in which the clauses are drafted is an indication of that. If she remains dissatisfied with that, I will certainly look at the matter further, because I recognise how significant this issue is, and it is a little late in the night for us to get involved in extensive debates on this. I will look at the matter further before Report. I hope that I have reassured her that we have the terms of these clauses right. However, the argument from my initial response to her holds, and I hope that she will be content with that answer.

Baroness Noakes: I thank the Minister for those remarks. I think that we are at one in saying that temporary public ownership should be a last resort. That is part of what I am trying to tease out, it is certainly what the Minister in another place said quite clearly and it is what government White Papers have said. If we are clear about that, the only issue is whether that is lived out in this Bill. My question was: if, in a situation where the FSA has said that the conditions in Clause 7 are met, and both conditions in Clause 8 and 9 are met—because it would be perfectly possible for a single situation to satisfy the requirements for both the Bank and the Treasury to Act; although there might be cases where only the Bank, not the Treasury, could act, there would be cases where both could act—how do we ascertain that it is the action of last resort? That is my only question.

Lord Davies of Oldham: I am grateful to the noble Baroness. I think that we have got the Bill right and I shall defend what I said about Clauses 8 and 9, but I recognise that the point she identified may need to be spelt out more clearly. I shall bring this back to her if she will withdraw her amendment; we would probably need to put that additional information in the code and we would seek to solve the issue in that way, because, for reasons that we identified earlier, there are certain rigidities regarding this situation that we wish to avoid. However, she has made a sufficient case for us to consider that a response will be necessary on Report, and we will probably seek to give further information with regard to the code. With that, I hope that the noble Baroness will withdraw the amendment.

Baroness Noakes: Without wishing to prejudge any debates that we might have on Report, I say for the Minister's benefit that he will not expect us to regard a code that does not have parliamentary approval or any legal enforceability as an adequate substitute for something placed in the Bill. However, let us leave that discussion for another day. I am grateful that the Minister will look at this issue again and I beg leave to withdraw the amendment.
	Amendment 30 withdrawn.
	Clause 9 agreed.
	House resumed.

House adjourned at 9.56 pm.